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GuruFocus has detected 2 Warning Signs with Baker Hughes Inc $BHI.
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Baker Hughes Inc (NYSE:BHI)
Gross Profit
$230 Mil (TTM As of Mar. 2017)

Baker Hughes Inc's gross profit for the three months ended in Mar. 2017 was $374 Mil. Baker Hughes Inc's gross profit for the trailing twelve months (TTM) ended in Mar. 2017 was $230 Mil.

Gross Margin is calculated as gross profit divided by its revenue. Baker Hughes Inc's gross profit for the three months ended in Mar. 2017 was $374 Mil. Baker Hughes Inc's revenue for the three months ended in Mar. 2017 was $2,262 Mil. Therefore, Baker Hughes Inc's Gross Margin for the quarter that ended in Mar. 2017 was 16.53%.

Baker Hughes Inc had a gross margin of 16.53% for the quarter that ended in Mar. 2017 => No sustainable competitive advantage

During the past 13 years, the highest Gross Margin of Baker Hughes Inc was 34.35%. The lowest was -1.34%. And the median was 20.99%.


Definition

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

Baker Hughes Inc'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
=9841 - 9973
=-132

Baker Hughes Inc's Gross Profit for the quarter that ended in Mar. 2017 is calculated as

Gross Profit (Q: Mar. 2017 )=Revenue - Cost of Goods Sold
=2262 - 1888
=374

Baker Hughes Inc Gross Profit for the trailing twelve months (TTM) ended in Mar. 2017 was -704 (Jun. 2016 ) + 294 (Sep. 2016 ) + 266 (Dec. 2016 ) + 374 (Mar. 2017 ) = $230 Mil.

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

Baker Hughes Inc'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
=374 / 2262
=16.53 %

* 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

Baker Hughes Inc had a gross margin of 16.53% for the quarter that ended in Mar. 2017 => No sustainable competitive advantage


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.

Baker Hughes Inc Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
Gross_Profit 3,5833,9102,2673,2304,5674,0053,8114,8051,327-132

Baker Hughes Inc Quarterly Data

Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17
Gross_Profit 1,46125238441128012-704294266374
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