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GuruFocus has detected 2 Warning Signs with Encana Corp $ECA.
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Encana Corp (NYSE:ECA)
Gross Margin %
58.06% (As of Mar. 2017)

Gross Margin is calculated as gross profit divided by its revenue. Encana Corp's gross profit for the three months ended in Mar. 2017 was $753 Mil. Encana Corp's revenue for the three months ended in Mar. 2017 was $1,297 Mil. Therefore, Encana Corp's Gross Margin for the quarter that ended in Mar. 2017 was 58.06%.

Warning Sign:

Encana Corp gross margin has been in long term decline. The average rate of decline per year is -13.4%.

ECA' s Gross Margin % Range Over the Past 10 Years
Min: 25.15   Max: 67.58
Current: 36.79

25.15
67.58

During the past 13 years, the highest Gross Margin of Encana Corp was 67.58%. The lowest was 25.15%. And the median was 51.14%.

ECA's Gross Margin % is ranked lower than
73% of the 426 Companies
in the Global Oil & Gas E&P industry.

( Industry Median: 48.70 vs. ECA: 36.79 )

Encana Corp had a gross margin of 58.06% for the quarter that ended in Mar. 2017 => Durable competitive advantage

The 5-Year average Growth Rate of Gross Margin for Encana Corp was -13.40% per year.


Definition

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

Encana Corp's Gross Margin for the fiscal year that ended in Dec. 2016 is calculated as

Gross Margin (A: Dec. 2016 )=Gross Profit (A: Dec. 2016 ) / Revenue (A: Dec. 2016 )
=734 / 2918
=(Revenue - Cost of Goods Sold) / Revenue
=(2918 - 2184) / 2918
=25.15 %

Encana Corp'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 )
=753 / 1297
=(Revenue - Cost of Goods Sold) / Revenue
=(1297 - 544) / 1297
=58.06 %

* 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

Encana Corp had a gross margin of 58.06% for the quarter that ended in Mar. 2017 => Durable competitive advantage


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

Operating Margin, Cost of Goods Sold, Gross Profit, Revenue


Historical Data

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

Encana Corp Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
Gross Margin 44.6547.3059.1767.5864.2551.9650.3255.5644.7825.15

Encana Corp Quarterly Data

Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17
Gross Margin 59.3246.4426.0254.5745.3929.48-34.0742.3926.8958.06
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