News reports often discuss a marginal increase in sales for a major company or even for a market as a whole. These changes in sales are often connected to market movements and changes that both competitors and investors are interested in. In an increasingly global economy, changes in policy or demand in one nation often change sales marginally in another nation due to the complex relationship between imports and exports. This reference to a marginal increase can mean several things, usually connected with a company's efficiency.
Marginal as an Amount
Sometimes reports use the term "marginal" loosely. Colloquially, marginal simply means "a little." In other words, sales increased slightly but not enough to have it be worthwhile to report an actual number or percentage. This can still show useful information regarding the market's reaction to certain news, but it is not as useful as real data. A marginal increase in sales may not mean more than sales staying the same and can even indicate the absence of growth, a negative association.
Marginal Revenue Concept
In some cases a marginal increase in sales means something much more specific than a vague, positive growth. Marginal revenue is a key number in the income statement that is closely connected with sales. It refers to revenue that is earned from sales after costs have been subtracted. This shows how much sales have actually increased a company's earnings, a very important number for the business itself, though possibly less telling regarding the industry as a whole.
Gross and Net Margins
Gross and net margins are two of the most common types of marginal revenues. If gross margins increase, this means a company has increased sales without increasing its cost of goods sold by the same amount. This means that a company makes a greater base profit for each unit sold and may indicate that the market is willing to accept higher prices. A higher net margin means that the company is making greater earnings after all expenses have been paid for, including interest and taxes.
From an analysis perspective, a true marginal increase in sales is a health sign for the company. It either means that the company is becoming more efficient and using its funds more wisely to control its margins or that the market itself has become more robust and demand is rising. It may also indicate the beginning of inflationary problems, but this is less common. Investors prefer to see margin increases in sales revenue and will respond positively.
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