HOW ARE EARNINGS RELATED TO REVENUES?

HOW ARE EARNINGS RELATED TO REVENUES?

QUESTIONS

Why is it that earnings can grow three times as fast as revenues?

How can the bottom line grow faster than the top?

OBJECTIVES

The aim is to increase the ratio of net earnings to gross revenues. And also increase earnings per share.

Cutting costs and increasing productivity are ways to increase efficiency. The board could also organise to reduce the number of shares through buybacks.

EXAMPLE

Here's an extract from a company's interim report ( https://www.ienergizer.com/about-ienergizer/financial-information/ ):

Operational Highlights : 

   Continued focus on higher margin work and success in business development with existing international customers. 

Business Process Outsource (“BPO”): 

   Service Revenue reduced by 7.6% to $54.9m in H1 2021 (H1 2020: $59.4m), due to reduced business from some clients in India. EBITDA margin grew to 37.3% at $20.8m (H1 2020: 33.5% at $20.3m), as COVID-19 positively impacted iEnergizer’s largest and higher margin generating international verticals, offsetting the negative impact on smaller verticals (low-margin India- based travel and e-commerce work). BPO’s outsized exposure to fast-growing markets of video gaming, BFSI, telecom and healthcare is expected to result in revenue growth going forward after the temporary decline in the first half of the year. 

 

Content Division:

 

   Service Revenue reduced by 5.6% to $33.7m in H1 2021 (H1 2020: $35.7m), as some key clients postponed high value projects to H2 2021, due to COVID-19. EBITDA margins grew to 28.8% at $9.9m (H1 2020: 24.5% at $8.8m) due to cost-savings and productivity enhancements from 90% of employees transitioning to work from home.  

Increase in revenue share from higher margin E-Learning contracts helped to reduce the larger negative revenue impact on traditional publishing segments during global lockdowns in H1 2021.   

Focused on increasing its revenue share from the SaaS product line of “Scipris”, investing in sales to promote this product line.