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GuruFocus has detected 6 Warning Signs with K12 Inc \$LRN.
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K12 Inc (NYSE:LRN)
Gross Profit
\$333.4 Mil (TTM As of Dec. 2016)

K12 Inc's gross profit for the three months ended in Dec. 2016 was \$83.5 Mil. K12 Inc's gross profit for the trailing twelve months (TTM) ended in Dec. 2016 was \$333.4 Mil.

Gross Margin is calculated as gross profit divided by its revenue. K12 Inc's gross profit for the three months ended in Dec. 2016 was \$83.5 Mil. K12 Inc's revenue for the three months ended in Dec. 2016 was \$221.1 Mil. Therefore, K12 Inc's Gross Margin for the quarter that ended in Dec. 2016 was 37.79%.

K12 Inc had a gross margin of 37.79% for the quarter that ended in Dec. 2016 => Competition eroding margins

During the past 13 years, the highest Gross Margin of K12 Inc was 45.88%. The lowest was 35.91%. And the median was 41.23%.

Warning Sign:

K12 Inc gross margin has been in long term decline. The average rate of decline per year is -3%.

Definition

Gross Profit is the different between the sale prices and the cost of buying or producing the goods.

K12 Inc's Gross Profit for the fiscal year that ended in Jun. 2016 is calculated as

 Gross Profit (A: Jun. 2016 ) = Revenue - Cost of Goods Sold = 872.7 - 546.51 = 326.2

K12 Inc's Gross Profit for the quarter that ended in Dec. 2016 is calculated as

 Gross Profit (Q: Dec. 2016 ) = Revenue - Cost of Goods Sold = 221.09 - 137.542 = 83.5

K12 Inc Gross Profit for the trailing twelve months (TTM) ended in Dec. 2016 was 86.585 (Mar. 2016 ) + 78.183 (Jun. 2016 ) + 85.039 (Sep. 2016 ) + 83.548 (Dec. 2016 ) = \$333.4 Mil.

Gross Profit is the numerator in the calculation of Gross Margin:

K12 Inc's Gross Margin for the quarter that ended in Dec. 2016 is calculated as

 Gross Margin (Q: Dec. 2016 ) = Gross Profit (Q: Dec. 2016 ) / Revenue (Q: Dec. 2016 ) = (Revenue - Cost of Goods Sold) / Revenue = 83.5 / 221.09 = 37.79 %

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

A positive Gross Profit is only the first step for a company to make a net profit. The gross profit needs to be big enough to also cover related labor, equipment, rental, marketing/advertising, research and development and a lot of other costs in selling the products.

Explanation

Warren Buffett believes that firms with excellent long term economics tend to have consistently higher margins.

Durable competitive advantage creates a high Gross Margin because of the freedom to price in excess of cost. Companies can be categorized by their Gross Margin

1. Greater than 40% = Durable competitive advantage
2. Less than 40% = Competition eroding margins
3. Less than 20% = no sustainable competitive advantage
Consistency of Gross Margin is key

K12 Inc had a gross margin of 37.79% for the quarter that ended in Dec. 2016 => Competition eroding margins

Related Terms

Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

K12 Inc Annual Data

 Jun07 Jun08 Jun09 Jun10 Jun11 Jun12 Jun13 Jun14 Jun15 Jun16 Gross_Profit 64.5 95.0 118.6 162.4 215.3 299.8 349.8 350.3 340.5 326.2

K12 Inc Quarterly Data

 Sep14 Dec14 Mar15 Jun15 Sep15 Dec15 Mar16 Jun16 Sep16 Dec16 Gross_Profit 89.9 86.3 95.6 68.8 82.2 79.2 86.6 78.2 85.0 83.5
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