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Category Archives for "Profitability Ratio"

Return On Invested Capital

This is a complete guide on how to calculate Return on Invested Capital Ratio (ROIC) with detailed analysis, interpretation, and example. You will learn how to use its formula to assess a company's profitability.

Definition - What is Return on Invested Capital?

The return on invested capital ratio (ROIC) is a simple calculation that helps you figure out how well a company is using the money stockholders have invested into it.

The higher the ROIC ratio, the smarter the company is about spending its money to increase profits.

This ratio is particularly useful when it’s used to compare with a company’s weighted average cost of capital (WACC).

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Return on Research Capital Ratio

This is an in-depth guide on how to calculate Return on Research Capital Ratio (RORC) with detailed analysis, interpretation, and example. You will learn how to use its formula to assess a firm's profitability.

Definition - What is Return on Research Capital Ratio?

The return on research capital ratio (RORC) assesses the return a company earns as a result of expenditure on research and development activities.

As research and development are a key technique for companies to create new products, this is an important metric to understand a company’s productivity and capabilities.

Pharmaceutical and tech companies who typically spend heavily on R&D would be the most common users of this metric.

As a general rule, the higher the RORC ratio, the better as it would suggest that the company is achieving a good return on its R&D investment and this is what any investor wants to see.

A low return on research capital would, on the other hand, suggest that the company is not achieving a good return per $1 and subsequently, would potentially need to review future expenditure on R&D.

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Return On Revenue Ratio

This is a complete guide on how to calculate Return on Revenue Ratio (ROR) with detailed interpretation, example, and analysis. You will learn how to use its formula to evaluate a company's profitability.

Definition - What is Return on Revenue Ratio?

Among the many ways of measuring the profitability of a company, the return on revenue ratio (ROR), is one of them.

As the name suggests, this ratio works by comparing the net income of a company to its total revenue.

The factors that affect the ROR ratio are those factors that affect the profits and sales revenue of a company.

These include: the cost of sales, expenses incurred, product quantity demanded, trade discounts, the market reached, just to mention but a few.

These values can both be derived and extracted from the income statement of a company.

A business can easily increase its return on sales revenue by making changes to its sales mix, by improving its earnings, or by cutting unnecessary expenses.

Since this ratio is tied with the net profit, it also puts a significant impact on the company’s earnings per share (EPS).

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Cash Return on Capital Invested Ratio

This is a detailed guide on how to calculate Cash Return On Capital Invested Ratio (CROCI) with detailed analysis, interpretation, and example. You will learn how to use its formula to assess a firm's profitability.

Definition - What is Cash Return On Capital Invested Ratio?

The cash return on capital invested ratio (CROCI or CROIC), also known as the cash return on cash invested ratio, is a valuation multiple that you can use to gauge a company's capacity to create cash returns on its investments.

This ratio works by comparing the company’s operating cash flow with its gross cash invested by all security-holders.

This advanced metric was created by the Deutsche Bank Group and it works based on an economic profit model.

What makes the CROCI ratio unique is that it provides you with a cash-flow based measurement for assessing the income of a business.

Companies with a higher cash return on invested capital ratio is considered a better investment opportunity as it can generate more cash flow from the capital invested by the shareholders.

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