Your gross margin tells you the amount of revenue you have left over to service other costs like operating expenses, debt, and reinvestment in your company. Unfortunately, this figure is not so simple in a SaaS environment. You can find fast-growing software companies in almost any vertical, but there are certain characteristics they all share. To find out which of these features are most key, my investment firm combed through our 2017 SaaS Benchmarks data, which covers 300 SaaS companies ranging from pre-revenue to more than $20 million in ARR. Here’s what we found.
. Gross profit is the revenue earned by a company after deducting the direct costs of producing its products. The direct labor and direct material costs used in production are called cost of goods sold (COGS). Typically, depreciation and amortization are not included in cost of goods sold and are expensed as separate line items on the income statement. However, a portion of depreciation on a production facility might be included in COGS since it's tied to production—impacting gross profit.Depreciation and Amortization.
Total revenue is highlighted in green for the amount of $2.55 billion, while the COGS is beneath revenue, coming in at $1.63 billion. Depreciation and amortization of $147 million are listed separately, highlighted in yellow. For J.C. Penney, gross profit for the period would include revenue and COGS.
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Depreciation and amortization would not be used in the gross profit calculation, but instead would be included in the calculation of operating income. Penney's operating income for the quarter came in at -93 million or a loss.