Return On Sales (ROS)

Return On Sales (ROS) is a popular ratio used to evaluate a company's operational efficiency as well as its profitability. Return On Sales reflects how  well the company manages costs.

Return On Sales (ROS)

Return On Sales (ROS) is a popular ratio used to evaluate a company's operational efficiency as well as its profitability. Return On Sales reflects how resourcefully each dollar of sales revenue is used,and  how well the company manages costs.  ROS is also known as a company's Operating Profit Margin.

 


Return On Sales Formula

Return On Sales = (Operating Profit* / Total Sales) × 100%    * profit can be before or after interest and tax deduction

Return On Sales Interpretation

A higher Return On Sales indicates that a company is likely to cope well with circumstances such as a sales downturn, increasing costs, or a fall in prices;  and how a company may fare when entering into a price war. ROS can be helpful in analyzing companies with seasonal income patterns, or those withsubstantial depreciating assets or capital investment.



Note that ROS does not reveal any information about sales costs, overheads, labor or materials.  ROS varies greatly depending on the sector concerned. For instance, supermarkets depend on high volume sales and will consequently tend to report lower returns.  Return On Sales has long been a significant ratio in the retail sector.


Related Terms