1. What is Cost Revenue Ratio?

The Cost Revenue Ratio is a financial metric that compares a company's costs to its revenue. It indicates how efficiently a company is operating by showing what percentage of revenue is consumed by costs.

2. How Does the Calculator Work?

The calculator uses the simple formula:

Where:

• \( Cost \) — Total expenses (in currency)
• \( Revenue \) — Total income (in currency)

Explanation: A lower ratio indicates better efficiency, as less revenue is being spent on costs. A ratio of 1.0 means costs equal revenue (break-even point).

3. Importance of Cost Revenue Ratio

Details: This ratio is crucial for businesses to monitor operational efficiency, profitability, and financial health. It helps identify areas where cost control measures may be needed.

4. Using the Calculator

Tips: Enter both cost and revenue values in the same currency. Revenue must be greater than zero for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is a good cost revenue ratio?
A: Generally, a ratio below 1.0 indicates profitability. The lower the ratio, the more efficient the business operations.

Q2: Can the ratio be greater than 1?
A: Yes, a ratio greater than 1 indicates that costs exceed revenue, resulting in a financial loss.

Q3: How often should this ratio be calculated?
A: Businesses typically calculate this ratio monthly or quarterly to track financial performance over time.

Q4: Does this ratio vary by industry?
A: Yes, acceptable ratios can vary significantly across different industries due to varying cost structures.

Q5: What's the difference between cost revenue ratio and profit margin?
A: While related, profit margin is calculated as (Revenue - Cost)/Revenue and is expressed as a percentage, while cost revenue ratio is Cost/Revenue expressed as a decimal.