5 Reasons Gross Margin is Important in the Eyes of Investors

Written by
Zachary Pestana
Last Modified on
December 19, 2023

The development of a company can be observed from the income statement of that company. Therefore, the method to calculate profit and loss must be a science that is mastered by each company.

A healthy company is a company that knows whether it suffers losses or gains profits every month. If the owner does not have the skills and abilities to calculate the company’s profits and losses, then there should be a party assigned to analyze them.

Information on the company's profits and losses is very important not only for the owner, but also for investors and brands. Here is the complete information!

5 Reasons for the Importance of Profit and Loss for Investors

1. It serves as a reference to develop the company

As a business owner, you should observe and analyze your income statement by calculating the gross margin at the end of each month. Your company can then tell which expenditures are more significant.

If an expenditure is urgent and important for the company's operations, then that expenditure must take precedence. But if the expenditure is not so urgent, then it can be ruled out for the time being.

This becomes very important to avoid potential losses because a company’s main goal is to grow the business.

Building a company also requires an expertise in increasing the company’s earnings or profits from month to month. One of the benefits having the income statement is to examine that.

2. It is an important material to evaluate the company’s performance

The previous month's income statement can serve as a reference on how to develop the business in the future. The previous month's income statement is also an important material for evaluating the company.

From the income statement, the business owner can know whether to expect profits or losses if the business continues in the same direction. If there is indeed a potential loss, then there must be some changes in the strategies or the ways the business is run.

This is very important because if a company suffers a loss continuously, it may need to terminate some of its employees. This may happen because the company is experiencing ups and downs in the face of various kinds of competition and pressure.

The income statement is also important for investors because if there can be a potential loss, then the report can serve as a basis for investors to withdraw their investments.

The income statement must be developed carefully because investors use it as a reference to determine important decisions, such as whether to continue or terminate their collaboration with the company.

The income statement also illustrates the company's financial health.

3. It helps investors to examine their risks of investment

Another purpose of recording a company's profit and loss is to see what kind of risks the company will face in the future. There can be two possibilities: potential losses or potential profits. If there is a potential profit, company can take steps to develop this potential so it can gain even more profits.

If there has to be a loss, calculating the gross profit helps to anticipate the possible losses in the future.

Every business actor must know, understand and realize that there is risk in every business. It is most important is to minimize the risks that may occur unexpectedly.

If the risk of losses requires a company to sell some of its assets, then this has to be done. But if the risk is not too big and the company can still get a business loan, then looking for a loan can be an option.

Business loans now come in various types. There are even online loans for businesses with a large loan amount, ranging from 20 million up to 500 million rupiah.

3. What is an online loan?

Loans can be obtained online and with a large amount from Aspire. Aspire is also a solution for those who are looking for an unsecured loan.

Aspire is available for business people who need fast funds without collateral. You only need to complete a single submission and the team will immediately review and approve the loan. Aspire also offers digital credit cards that can be owned by small business owners.

There are several benefits that can be obtained with a digital credit card from Aspire.

One of the advantages is that Aspire offers an interest-free digital credit card if repayment is made within 60 days. With Aspire, withdrawal is also very easy because you can get the funds within 24 hours.

4. Gross margin is a tool for companies to analyze their strategies

Running a company obviously involves some strategies. It is very important to know how successful a specific strategy is.

This can be analyzed from how much profit is generated. The greater the profit generated, the more successful a strategy is implemented.

On the contrary, if the profit is small or the company is experiencing a loss, then there must be some strategic changes in the following months. The changes can be done in marketing strategies, discount strategies, pricing strategies or others.

If there is a need for a new strategy, business owner needs to take time to formulate the new strategy so that the same thing will not happen again.

5. It is the benchmark of a company

The company's income statement is indeed an indicator or a benchmark for the company to strive and be better in the future.

The income statement performance can spur a company to be more enthusiastic in competing with other companies engaged in the same field. When applying for a loan from the bank, the income statement is usually asked for the bank to decide whether to provide the loan or not, and to determine the amount of the loan.

For more episodes of CFO Talks, check us out on Apple Podcasts, Google Podcasts, Spotify or add our RSS feed to your favorite podcast player!

Frequently Asked Questions

No items found.
About the author
Zachary Pestana
is a seasoned writer in market trends and business thought leadership. With a writing history at Incorp Global, MOQdigital, and AIESEC Australia, Zachary leverages his broad range of experiences to stimulate industry conversations and engage audiences.
Supercharge your finance operations with Aspire
Find out how Aspire can help you speed up your end-to-end finance processes from payments to expense management.
Talk to Sales