Return on Revenue = Net Income (Net Profit) / Revenue = Profit Margin
A corporation’s return on revenue is useful in comparing profitability from year to year and evaluating its profitability performance, by comparing the net income and the revenue. When ROR decreases, it may indicate that expenses are rising. Conversely, when ROR increases, it may provide an indication that expenses are being handled efficiently. By reviewing ROR and changes to ROR values over time, a company’s management can implement expense control measures where necessary.
Since return on revenue does not take into consideration a company’s assets and liabilities, it should be used in conjunction with other metrics when evaluating a company’s financial performance and position.
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