Analyzing Incremental Margins
Hey all - trying to learn more about modeling and trying to get smarter about understanding incremental margins. If looking at incremental margins on a quarterly basis, should you look at them QoQ or sequentially? Also the quarterly incremental margin numbers I've seen tend to be quite noisy (not very indicative of what the annual incremental margins look like), so I'm not sure how much weight is given to quarterly incremental margins when modeling. Appreciate any help!
Quarterly incremental margins dont really matter as they dont take into account seasonality
Depends what you want to better understand by performing such analysis. Typically in the model, there is a section where 4-5 rows are dedicated for an analysis like this, which will include various time frames and methods. which are all on a quarterly basis. also Q/Q and sequentially mean the same thing
1) Y/Y incremental margin
2) LTM incremental margin
3) Q/Q incr margin
4) Q/Q chg in Y/Y inc margin
5)Q/Q chg in LTM inc margin
the last two give you an idea of acceleration/deceleration and rates of change...
Got it, and thanks for clearing up my misuse of Q/Q. Just wanted to clarify what #4 is referring to: would that be comparing, for example, Operating Profit/Revenues in 2Q24 and 2Q23
its the bps change on a sequential basis of the inc margin in #1. its showing you rates of change or accelerating/decelerating margin expansion. ie. are they seeing incremental margin expansion that is getting larger or is the expansion getting smaller
Got it - thanks so much
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