Return On Revenue - ROR

What is Return On Revenue?

The Return on Revenue (ROR) is a measure of profitability that compares net Income of a company to its revenue. It is calculated by dividing net income by revenue. A business can increase ROR by increasing profit with a change in sales mix or by cutting expenses. ROR also has an impact on a firm’s Earnings Per Share (EPS), and analysts use ROR to make investment decisions. ROR is a financial tool used to measure the profitability performance of a company. Also called net profit margin.

ROR compares the net income and the revenue. The only difference between net income and revenue is the expenses. An increase in ROR is means that the company is generating higher net income with lesser expenses. Return on revenue uses net income, which is calculated as revenues minus expenses. The calculation includes both expenses paid in cash and non-cash expenses, such as Depreciation.

The net income calculation includes all of the business activities of the company, which includes day-to-day operations and unusual items, such as the sale of a building.

Revenue, on the other hand, represents sales, and the balance is reduced by sales discounts and other deductions, such as sales returns and allowances.

Return on Revenue Formula

The return on revenue (ROR) is calculated by dividing the net income by the revenue. This can be expressed in the following formula.

Return on Revenue (ROR) = Net Income / Revenue

Both of these figures can be found in the income statement. Net income is also sometimes referred to as profit after tax.