Net margin / Profit margin / Return on sales

Last updated: 25.03.2016

Net margin (Return On Revenue - ROR" or Return On Sales - ROS ") is one of profitability indicators. It shows how much profit is generated from the unit revenue. It is a useful indicator to control costs as the formula for operating ratio can be easily derived from it.

 

Calculation formula

 

 

Profit may be EBIT (PBIT), EBT (PBT) or EAT (PAT).

 

Comparison

  • suitable mainly for comparisons within the company - especially as an indicator of costs increases over time as the decreasing ratio can indicate rising costs, and vice versa
  • comparisons between companies makes sense only, if these are very similar businesses in the same industry where similar cost levels and gross margin % can be expected
  • appropriate is the comparison with the industry average


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