Acca financial Accounting (FA) Study Text ac ca (FA)

Inter-company comparison of gross profit margin 

Inter-company comparison of margins can be very useful but it is 

especially important to compare business entities within the same sector. 

For example, food retailing is able to support low margins because of the 

high volume of sales. Jewellers would usually need higher margins to 

offset lower sales volumes. 

Low margins usually suggest poor performance but may be due to 

expansion costs (launching a new product) or trying to increase market 

share. Lower margins than usual suggest scope for improvement. 

Above-average margins are usually a sign of good management although 

unusually high margins may make the competition keen to join in and 

enjoy the ‘rich pickings’.