A financial term that pertains to the effect these various internal or market forces on a company’s gross, operating, or net margins. These forces can cause production issues or delays. Increased regulatory controls, new industry related legislation, and macroeconomic events such as rising oil prices are some of the external forces that affect a company’s margin. Margins will be compressed in the event a company’s cost rise or revenues fall, which will reduce net earnings.
Below are the things that may cause margin pressure:
- New rival enters the business and increases the products it offer or lowers its price
- Cost of a commodity rise or other costs within the supply chain increase
- Regulatory controls increase on the company or industry
- New legislation is introduced, which changes the markets where the company competes
- Inner production problems or delays emerges
- The costs of selling, general, and administrative expense (SG&A) increase without a balanced revenue rise
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