Return on Sales

Posted in Finance, Accounting and Economics Terms, Total Reads: 533
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Definition: Return on Sales

Return on sales (ROS) is a ratio that captures a company’s operating performance. It is also referred to as as "operating profit margin" or "operating margin". ROS indicates the profit an entity makes after expensing variable costs of production such as wages, raw materials, etc. (but before interest and tax). ROS is expressed as a percentage of revenue.


Importance

1. ROS helps in analyzing a company’s performance with respect to its past performance and its competitors in the industry. It also helps in finding out trends in its performance and hence making necessary interpretations.

2. The ratio varies over the industry greatly yet in a particular business it can provide relevant insights. A increasing ratio signals increasing efficiency while a decreasing ratio points towards financial troubles.

3. It provides management insights on the amount of profit per dollar of sales


Calculation (formula)

Return on sales (operating margin

= Net Income (Before Interest and Tax) / Sales

 

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