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Coventry Health Care, Inc. (NYSE:CVH)
Gross Margin
21.99% (As of Mar. 2013)

Gross Margin is calculated as gross profit divided by its revenue. Coventry Health Care, Inc.'s gross profit for the three months ended in Mar. 2013 was \$774 Mil. Coventry Health Care, Inc.'s revenue for the three months ended in Mar. 2013 was \$3,520 Mil. Therefore, Coventry Health Care, Inc.'s Gross Margin for the quarter that ended in Mar. 2013 was 21.99%.

Coventry Health Care, Inc. had a gross margin of 21.99% for the quarter that ended in Mar. 2013 => Competition eroding margins

The 5-Year average Growth Rate of Gross Margin for Coventry Health Care, Inc. was 0.00% per year.

Definition

Gross Margin is the percentage of Gross Profit out of sales or Revenue.

Coventry Health Care, Inc.'s Gross Margin for the fiscal year that ended in Dec. 2012 is calculated as

 Gross Margin (A: Dec. 2012 ) = Gross Profit (A: Dec. 2012 ) / Revenue (A: Dec. 2012 ) = 2992.8 / 14113.363 = (Revenue - Cost of Goods Sold) / Revenue = (14113.363 - 11120.577) / 14113.363 = 21.21 %

Coventry Health Care, Inc.'s Gross Margin for the quarter that ended in Mar. 2013 is calculated as

 Gross Margin (Q: Mar. 2013 ) = Gross Profit (Q: Mar. 2013 ) / Revenue (Q: Mar. 2013 ) = 774.1 / 3520.235 = (Revenue - Cost of Goods Sold) / Revenue = (3520.235 - 2746.136) / 3520.235 = 21.99 %

* All numbers are in millions except for per share data and ratio. All numbers are in their own 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

Coventry Health Care, Inc. had a gross margin of 21.99% for the quarter that ended in Mar. 2013 => Competition eroding margins

Be Aware

If a company loses its competitive advantages, usually its gross margin declines well before its sales declines. Watching Gross Margin and Operating Margin closely helps avoid value trap situations.

Related Terms

Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

Coventry Health Care, Inc. Annual Data

 Dec03 Dec04 Dec05 Dec06 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12 Gross Margin 20.46 21.20 31.16 29.66 29.00 23.92 20.16 26.49 23.48 21.21

Coventry Health Care, Inc. Quarterly Data

 Dec10 Mar11 Jun11 Sep11 Dec11 Mar12 Jun12 Sep12 Dec12 Mar13 Gross Margin 26.61 23.15 23.54 24.15 23.12 22.09 19.71 20.73 22.25 21.99
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