Incremental margin is a decrease or increase in income during two time periods. The incremental margin for an organization is affected by income tax expenses, income from stocks and interest expenses. The incremental margin is useful for analyzing financial information that affects decision making.
Investopedia explains that incremental margin identifies the costs and revenue related to operational necessities, ignoring sunk operational costs. This margin identifies the impact operational costs have on potential future income. The incremental margin is determined between two periods, occurring before factoring additional expenses and compensation. Incremental margin is also referred to as relevant cost approach and differential analysis.