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Term · Profitability & Growth

Gross margin bridge

Advanced
In briefA gross margin bridge breaks down the change in gross margin into its drivers such as price, volume, product mix, procurement costs, currency and capacity utilization. For small caps even small mix or supply-chain changes can move the margin substantially, which is why it reveals the quality of the margin trend.

Definition

An analysis of which factors explain a change in gross margin: price, volume, product mix, procurement costs, currency, capacity utilization.

How it is calculated

Formula. Gross margin change = price/mix effect + cost/currency effect + volume/utilization effect.

Why it matters for small caps

In the small-cap segment, small mix or supply-chain changes can significantly alter the margin; the bridge shows the quality of the margin trend.

Common misreadings

  • A rising gross margin is broadly read as an efficiency gain, even though mix or one-off effects may dominate.

In the process

→ Used in Step 3 – Financial traffic-light

Frequently asked

What is a gross margin bridge?
It is a breakdown of which factors caused a change in margin. It reveals where an increase or decline comes from.
How do you build a gross margin bridge?
You break the margin change down into price and mix, cost and currency, as well as volume and utilization effects. The sum of these contributions equals the total change.
Why is a rising gross margin not automatically good?
It is quickly seen as a sign of higher efficiency, even though product mix or one-off effects can also be behind it. Only the bridge shows whether the trend is sustainable.

Related terms

Gross marginOperating leverageRevenue mix

Sources

Primary
Methodology
Category: Profitability & Growth · MarginsRelevance: AdvancedJurisdiction: EU

Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.