Economies of Scale

CFA Level II Equities
#1

Hello,

How do we determine a company has economies of scale by looking at the financial statements?

I saw in the book, they say that operating margin and gross margin must be positively correlated, but i do not get the logic behind. Every time a economy scale type of question, I think we should just look at the cost of goods sold and S&A.

Thanks,

#2

Profit per unit = price per unit - variable costs per unit - (fixed costs / no. units) = gross profit per unit - (fixed costs/ no. units)

The more units you produce the lower the fixed costs per unit the higher the profit. Regards, Oscar