Revenue Divided By Net Income

Expressed as a percentage profit margin indicates how many cents.

Revenue divided by net income. In the scenario given above the company would have a 20 percent profit margin since a 200 000 net income is 20 percent of the company s 1 000 000 gross revenue. The simplest way to think about the roi formula is taking some type of benefit and dividing it by the cost. The return on revenue ror is tool for measuring the profitability performance of a company from year to year. Profit margin gauges the degree to which a company or a business activity makes money essentially by dividing income by revenues.

The formula for net income is simply total revenue minus total expenses. Roi net income cost of investment. Net revenue is often listed on an income statement at the bottom. Net revenue subtracts the cost of goods sold from gross revenue.

Analysis the profit margin ratio directly measures what percentage of sales is made up of net income. Also called net profit margin. Net income goes even further than net gross margin because you deduct all other expenses including overhead and taxes. The formula for the ratio is operating cash flow divided by revenue expressed as a percentage.

The first version of the roi formula net income divided by the cost of an investment is the most commonly used ratio. People often refer to net income as the bottom line as it is the last line item on an income statement. Roi investment gain investment base. Fees for production shipping and storage as well as any discounts allowances and returns can all potentially contribute toward this cost.

Operating cash flow is net income plus adjustments for noncash items such as depreciation expense and changes in working capital which is the difference between current assets and current liabilities. If a company s net income is viewed as a percentage of its gross revenue you can see its profit margin.