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GuruFocus has detected 9 Warning Signs with Arthur J. Gallagher & Co $AJG.
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Arthur J. Gallagher & Co (NYSE:AJG)
Gross Profit
$1,662 Mil (TTM As of Mar. 2017)

Arthur J. Gallagher & Co's gross profit for the three months ended in Mar. 2017 was $388 Mil. Arthur J. Gallagher & Co's gross profit for the trailing twelve months (TTM) ended in Mar. 2017 was $1,662 Mil.

Gross Margin is calculated as gross profit divided by its revenue. Arthur J. Gallagher & Co's gross profit for the three months ended in Mar. 2017 was $388 Mil. Arthur J. Gallagher & Co's revenue for the three months ended in Mar. 2017 was $1,413 Mil. Therefore, Arthur J. Gallagher & Co's Gross Margin for the quarter that ended in Mar. 2017 was 27.48%.

Arthur J. Gallagher & Co had a gross margin of 27.48% for the quarter that ended in Mar. 2017 => Competition eroding margins

During the past 13 years, the highest Gross Margin of Arthur J. Gallagher & Co was 76.83%. The lowest was 29.11%. And the median was 36.35%.

Warning Sign:

Arthur J. Gallagher & Co gross margin has been in long term decline. The average rate of decline per year is -4.8%.


Definition

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

Arthur J. Gallagher & Co's Gross Profit for the fiscal year that ended in Dec. 2016 is calculated as

Gross Profit (A: Dec. 2016 )=Revenue - Cost of Goods Sold
=5594.8 - 3947.5
=1,647

Arthur J. Gallagher & Co's Gross Profit for the quarter that ended in Mar. 2017 is calculated as

Gross Profit (Q: Mar. 2017 )=Revenue - Cost of Goods Sold
=1412.7 - 1024.5
=388

Arthur J. Gallagher & Co Gross Profit for the trailing twelve months (TTM) ended in Mar. 2017 was 471.1 (Jun. 2016 ) + 406 (Sep. 2016 ) + 396.3 (Dec. 2016 ) + 388.2 (Mar. 2017 ) = $1,662 Mil.

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

Arthur J. Gallagher & Co's Gross Margin for the quarter that ended in Mar. 2017 is calculated as

Gross Margin (Q: Mar. 2017 )=Gross Profit (Q: Mar. 2017 ) / Revenue (Q: Mar. 2017 )
=(Revenue - Cost of Goods Sold) / Revenue
=388 / 1412.7
=27.48 %

* 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

Arthur J. Gallagher & Co had a gross margin of 27.48% for the quarter that ended in Mar. 2017 => Competition eroding margins


Related Terms

Cost of Goods Sold, Gross Margin, Revenue


Historical Data

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

Arthur J. Gallagher & Co Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
Gross_Profit 1,1861,2646616837779151,0571,4001,6121,647

Arthur J. Gallagher & Co Quarterly Data

Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17
Gross_Profit 348347450431385374471406396388
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