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