What kinds of industries rely heavily on fixed costs, which industries may have very low fixed...

What kinds of industries rely heavily on fixed costs, which industries may have very low fixed costs? How do their average profit margins compare?

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Expert Solution

Well,

Industries which rely more on Fixed costs are manufacturing industry, trucking, oil and gas etc because they want to purchase lots of equipments particularly machinery for production and extraction which incur fixed power cost, rent of godowns etc.

However there are industries which incur very less fixed cost, particularly IT industry, it is because for this industry the companies doesn't want to purchase very high performance machines for products. Most of the time this industry has to bear the cost of bunch of computers and employees who can work on it and the internet charges.

Average profit margins generally understood by analyzing the

1. Gross profit margin

2. Operating profit margins

3. Net profit margin

These ratios helps the investors to measure the profit form total revenue.

It is less logical to compare a company net income to compare or analyse a companies overall performance. So analysis on the returns from each share give more insights into the company and its performance.

If the profit margins are higher then we can say that the company is performing well and If not it is analysed that companies performance is bad. Based on companies data on income statements and by using adequate formulas for profit margins can be compared with different industries.

jeff jeffy answered 1 year ago

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