b. Pricing and margin analysis
Prices of a company’s goods and services must be competitive otherwise it risks losing customers and potential sales. At the same time selling prices must include appropriate cost recovery, without which losses may occur and the operations become uneconomic.
In setting prices for the market, the company needs to consider its competitive position or that of its products and services, and also the complexities in operating the business activities. Poor price setting will be the first strategic error that will potentially lead to poor profitability and business failure. Proper pricing practices must always be a priority issue of business managers.
Situation 1 Situation 2 …show more content…
Net operating margin analysis
The net operating margin is the measure that indicates the final success of a company and its business activities. This is the final performance taking into account all operating expenses necessary to deliver the products and serve the customers.
a. A low net operating margin is a warning signal to the investor or financial analyst. It underscores the ease of that low margin slipping into a loss, either due to rising costs, or unexpected competition. A high operating margin has better risk absorbing capacity for those reasons mentioned.
b. In a competitive and dynamic trading environment in the world we live in today, price changes of between 5 % -10% in a moment’s notice is common place. In the same way costs rise with fluctuating commodity prices and poor management of resources every day. Poor managerial competence, slow decision making and badly trained staff are all factors that can lead to wastage and inefficient use of resources. Collectively we may refer to this as operational risks.
c. In that perspective a net operating margin of less than 10% will always be a concern to investors and company management. Successful and adaptive organizations often avoid low margin businesses. Lending banks too should be concerned about low margin businesses …show more content…
Net margins compared with net profit
a. It is useful to remind that there is a difference between the amount profit earned and profit margin. Profit of $10 million looks impressive. As margin, the profitability picture can be different.
b. An illustration of the point is given here.
Year $
Prices of a company’s goods and services must be competitive otherwise it risks losing customers and potential sales. At the same time selling prices must include appropriate cost recovery, without which losses may occur and the operations become uneconomic.
In setting prices for the market, the company needs to consider its competitive position or that of its products and services, and also the complexities in operating the business activities. Poor price setting will be the first strategic error that will potentially lead to poor profitability and business failure. Proper pricing practices must always be a priority issue of business managers.
Situation 1 Situation 2 …show more content…
Net operating margin analysis
The net operating margin is the measure that indicates the final success of a company and its business activities. This is the final performance taking into account all operating expenses necessary to deliver the products and serve the customers.
a. A low net operating margin is a warning signal to the investor or financial analyst. It underscores the ease of that low margin slipping into a loss, either due to rising costs, or unexpected competition. A high operating margin has better risk absorbing capacity for those reasons mentioned.
b. In a competitive and dynamic trading environment in the world we live in today, price changes of between 5 % -10% in a moment’s notice is common place. In the same way costs rise with fluctuating commodity prices and poor management of resources every day. Poor managerial competence, slow decision making and badly trained staff are all factors that can lead to wastage and inefficient use of resources. Collectively we may refer to this as operational risks.
c. In that perspective a net operating margin of less than 10% will always be a concern to investors and company management. Successful and adaptive organizations often avoid low margin businesses. Lending banks too should be concerned about low margin businesses …show more content…
Net margins compared with net profit
a. It is useful to remind that there is a difference between the amount profit earned and profit margin. Profit of $10 million looks impressive. As margin, the profitability picture can be different.
b. An illustration of the point is given here.
Year $