Question

Please explain what the following Financials mean Return on revenue %. What could impact the %

YR 1 - minus 2

YR 2 - minus 5

Yr 3 - minus 4.5

Yr 4 - minus 12

Yr 5 - Minus 6

Answer 1

Return on revenue or sales is the net profit as a percentage of sales.

Return on revenue = (Net Profit/ Revenue) * 100

A negative return on revenue indicates that the firm had made losses over the years. The losses can be either concentrated mainly at the gross level, at the operating level or financial level.

At the gross level, the cost of goods as % of sales can be so high that it depresses the margin. Similarly at the operating level, the operating expense % could be high such that it reduces the operating margin and finally at the financial level the interest cost or tax burden can be high such that it reduces the net margin. So, the losses can be due to variety of reasons at each level of operations.