Margin Pressure

AAA

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

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Contribution Margin

    A cost accounting concept that allows a company to determine ...
  2. Fixed Cost

    A cost that does not change with an increase or decrease in the ...
  3. Margin

    1. Borrowed money that is used to purchase securities. This practice ...
  4. Operating Expense

    A category of expenditure that a business incurs as a result ...
  5. Operating Income

    The amount of profit realized from a business's operations after ...
  6. Revenue

    The amount of money that a company actually receives during a ...
Related Articles
  1. Investing

    Zooming In On Net Operating Income

  2. Fundamental Analysis

    Measuring Company Efficiency

  3. Markets

    A Look At Corporate Profit Margins

  4. Markets

    Operating Cash Flow: Better Than Net ...

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center