Return On Revenue - ROR
Definition of 'Return On Revenue - ROR'
A measure of a corporation's profitability that compares net income to revenue. Return on revenue is calculated by dividing net income by revenue.
Return on Revenue = Net Income / Revenue
Net income (NI) is calculated by taking revenues and subtracting the costs of conducting business in addition to interest, taxes paid and depreciation.
Revenue is the amount of money that a company receives as a result of performing business activities during a specific period, including discounts and deductions for returned merchandise. Intrinsically, the difference between net income and revenue is expenses, such that an increasing ROR implies less expense for higher net income.
Investopedia explains 'Return On Revenue - ROR'
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.