Which formula represents gross margin in financial metrics?

The formula that represents gross margin in financial metrics is Net Sales minus Cost of Goods Sold (COGS). This calculation reflects the difference between the revenue a company earns from selling its goods and the direct costs associated with producing those goods. Gross margin is a critical metric because it shows how efficiently a company is producing and selling its products.

Gross margin is important for understanding a company's profitability at the most fundamental level, as it does not take into account other expenses such as operating costs, taxes, or interest. Rather, it zeroes in on the core activities of production and selling. A higher gross margin indicates that a company retains more profit from each dollar of sales after covering the cost of goods sold, which can suggest better control over production costs or higher pricing power in the marketplace.

The other formulas listed relate to different financial metrics that do not specifically indicate gross margin. For instance, sales revenue minus operating expenses would provide operating income, revenue minus all expenses gives net income, and net income minus total liabilities doesn't contribute to understanding gross margin at all.