What does it mean if a company's margins are squeezing?

Question

What does it mean if a company's margins are squeezing?

Answer 1

it means that they are making less money on the goods they are selling than they were before - for instance

last year the cost of materials to produce the products sold was

45% of sales - this year the cost of materials has risen to 48% of sales - and you've made no other adjustments to compensate for this - such as raising price or cutting overhead -

you're margins have just been squeezed!!! doesn't feel good does it?

Answer 2

Margin=Income/Sales.

If the margin is squeezing, it's either:

1. income is shrinking (with sales stay the same);

2. Sales is increasing (with income stays the same)

3. Both are shrinking.

In case 1, income shrinks could be caused by lowered price, increased expenses, etc

In case 2, sales is increasing, and thus expense could increase at the same time. And that could be the reason why income is staying at the same level.

Hope this helps.