How much control does a company have over its gross margins?

Obviously, companies have some control over their gross margin but presumably not nearly as much control as they do over their operating margin (presumably companies could lower their R&D/SG&A costs much more easily than they could raise their revenue to COGS ratio).

Part of the reason I ask this question is because of companies like Amazon. People keep saying that the only reason Amazon’s net margin is so low is because the company is purposely keeping it low by reinvesting all their money in the company. With that said though, Amazon’s R&D and SG&A costs are comparable to other companies within their sector – it seems to be their gross margin that’s truly responsible for their net margin being so low - it seems like they’ll be hurting until they can get their GM under control. How easy/difficult do you think that would be? After thinking about it, I guess GM is as easily changed as R&D/SG&A expenses – it’s totally up to the company how much above their COGS they want to price their products. How common is it though for a company’s GM% to rise from 25%/35% to ~50% (over a time frame of, say, 5 years)?

So if there were two companies with the exact same financials - the exact same revenue, the exact same net income (so the exact same NI%), the exact same NI growth rate, etc. – if they were literally the same in every way but with slightly different margin breakdowns - one having a GM% of 30% and an NI% of 20% and one having a GM% of 80% and an NI% of 20% (so company A having high COGS and low R&D/SG&A expenses and company B having low COGS and high R&D/SG&A expenses but each having the same net income), which would you view as the company with a more promising future? Company B because R&D/SG&A expenses are more easily lowered than COGS to revenue ratio? Or would it be impossible to say / unimportant / a wash / depend on more specific information (like what the exact breakdowns of the COGS/ R&D/SG&A expenses were)?

This question’s been bugging me for a while. Thanks!

Submitted December 14, 2017 at 12:29AM by Virus4762 http://ift.tt/2jRiwLM