What is the return on income?
Revenue return, or ror, is a means of measuring the company's profitability using a relatively simple formula. By distributing net income on the amount of income, it is possible to determine the impact of expenditure on the lower limit of business. This approach is often used to compare changes in profitability that occurs from one period to another, for example with an annual analysis.
The aim of most companies is to increase the amount of profitability from one period to another. While considering the net income itself provides some idea of whether this goal is achieved, it does not provide the entire picture. By distributing net income income, it is possible to allow costs incurred in this period and determine the impact of these expenses on this income. In other words, the company can use this approach to determine whether the return on income has increased, remained the same or reduced from the previous OR period compared to the same period last year or even five years ago.
What business owners hope to see is a trend that indicates at least an incremental increase in revenue return. If the data indicates an increase in the last period, this means that the company's expenditure is managed efficiently and that the company actually generates net profit. If the data suggests that the return on income has decreased, it is often a sign that expenses are not followed with the same degree of effectiveness as in the past. This data can lead to identifying where the costs can be minimized without damaging the quality of the goods or led to the production level, which is below the amount needed to satisfy consumer demand. Assuming the right strategies are introduced, the return on revenues for the next period is likely to improve.
Many companies compare income from one season to another. In some industries, this type of comparison can take place semi -annual, which allows business to compare themThe bottom of the six -month period with the previous six months or compare the time frame in the current year with the same period in the previous year. For any of these applications, it is easier to determine whether the company is moving forward or whether there is any aspect of a business operation that needs to be addressed before a further decline.