Margin Pressure

DEFINITION of 'Margin Pressure'

A financial term for the effect of certain internal or market forces on a company's gross, operating or net margins. If something happens to make a company's costs rise or revenues fall, margins will become compressed, reducing net earnings.

Things that can cause margin pressure include:

1. When a new competitor enters the business and increases its product offering or lowers its costs
2. When commodity costs rise or other costs within the supply chain are rising
3. When increased regulatory controls are imposed on the company or industry
4. When new legislation is introduced that fundamentally changes the markets in which the company competes
5. When internal production problems or delays arise
6. When rising selling, general and administrative expense (SG&A) costs occur without a proportional rise in revenue

BREAKING DOWN 'Margin Pressure'

Margin pressure can be related to macroeconomic events, such as rising oil prices, or company-specific events, such as a loss of market share. Investors expect margins to fluctuate over time, but severe margin pressures, or those that could exist for a long time, will usually drag down a stock even in advance of an actual earnings decline.

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