# Return On Sales - ROS

## What is 'Return On Sales - ROS'

Return on sales (ROS) is a ratio used to evaluate a company's operational efficiency; ROS is also known as a firm's operating profit margin.

This measure provides insight into how much profit is being produced per dollar of sales. An increasing ROS indicates that a company is growing more efficient, while a decreasing ROS could signal looming financial troubles.

Next Up

## BREAKING DOWN 'Return On Sales - ROS'

ROS is a financial ratio that calculates how efficiently a company is generating profits from its top-line revenue. It measures the performance of a company by analyzing the percentage of total revenue that is converted into operating profits. Investors, creditors and other debt holders rely on this efficiency ratio because it accurately communicates the percentage of operating cash a company actually makes on its revenue and can provide insight into potential dividends, reinvestment potential and the company's ability to repay debt.

ROS is used to compare current period calculations with calculations from previous periods. This allows a company to conduct trend analysis and compare internal efficiency performance over time. ROS is also used by comparing a company's percentage with the percentage of a competing company, regardless of scale. This makes it easier to assess the performance of a small company in relation to a Fortune 500 company. However, ROS varies widely depending on industry and should only be used to compare companies within the same vertical. A grocery chain, for example, has lower margins and therefore a lower ROS compared to a technology company.

## Calculating ROS

The ROS calculation is taken as a company's operating profit in a specific period divided by net sales for that same period. The equation for ROS is as follows: ROS = (Operating Profit) / (Net Sales).

The calculation shows how effectively a company is producing its core products and services and how its management team is running the business. Therefore, ROS is used as an indicator of both efficiency and profitability. For example, a company that generates \$100,000 in sales and requires \$90,000 in total costs to generate its revenue is less efficient than a company that generates \$50,000 in sales but only requires \$30,000 in total costs.

ROS is larger if a company's management team is better cutting costs and increasing revenue. Using the same example, the company with \$50,000 in sales and \$30,000 in costs has a operating profit of \$20,000 and a ROS of 40%, calculated by dividing \$20,000 by \$50,000. If the company's management team wants to increase efficiency, it can focus on increasing sales while incrementally increasing expenses, or it can focus on decreasing expenses while maintaining or increasing revenue.

RELATED TERMS
1. ### Operating Ratio

A ratio that shows the efficiency of a company's management by ...
2. ### Operating Margin

A ratio used to measure a company's pricing strategy and operating ...
3. ### Profit Margin

Profit margin is part of a category of profitability ratios calculated ...
4. ### After-Tax Return On Sales

A profitability measure that indicates how well a company uses ...
5. ### Working Capital Management

A managerial accounting strategy focusing on maintaining efficient ...
6. ### Market Share

The percentage of an industry or market's total sales that is ...
Related Articles
1. Investing

### Calculating Operating Ratio

An operating ratio compares a company’s operating expenses to its net sales.
2. Investing

### What Is the Best Measure of a Company's Financial Health?

Discover the single best financial metric that investors can use for determining the financial health and long-term sustainability of a company.
3. Investing

### The Difference Between Gross and Net Profit Margin

To calculate gross profit margin, subtract the cost of goods sold from a company’s revenue; then divide by revenue.
4. Investing

### A Look At Corporate Profit Margins

Take a deeper look at a company's profitability with the help of profit margin ratios.
5. Investing

### Efficiency Ratio

There are many types of efficiency ratios, but all measure how well a company utilizes its resources to make a profit. Business managers use these ratios to determine how well they are operating ...
6. Investing

### 4 Tips to Evaluate Growth Companies (KO, AAPL)

Discover the best metrics for stock investors to utilize when selecting and evaluating the best opportunities in growth investing.
7. Managing Wealth

### Asset Turnover Ratio

Investopedia explains: The asset turnover ratio is a measure of a company's ability to use its assets to generate sales or revenue, and is a calculation of the amount of sales or revenue generated ...
8. Investing

### Gross, Operating and Net Profit Margins

A company’s income statement includes the company’s gross, operating and net profits.
9. Investing

### The Value of Profitability Ratios

How is a company being run? Is it generating profits? The answer to these questions lies in analyzing the profitability ratios of a company.
10. Investing

### Return on Sales

Return on Sales is a financial ratio that is used to measure a company's performance. Specifically, it is Operating Profit divided by Net Sales. The result is a percent, such as 10%, that indicates ...
RELATED FAQS
1. ### What is the best timeframe to use when evaluating return on sales (ROS)?

Understand the significance of the return on sales ratio, and learn how investors and analysts commonly use it in evaluating ... Read Answer >>
2. ### Is return on sales the best metric for profitability?

Examine the profitability metric of return on sales, or ROS, and understand why it is not commonly considered the best measure ... Read Answer >>
3. ### Is return on sales (ROS) the same as profit margin?

Take an in-depth look at the similarities and possible differences between return on sales, or ROS, and profit margin, two ... Read Answer >>
4. ### Is return on sales (ROS) the same as return on equity?

Learn how to differentiate between two of the most popular ratios used in finance and accounting: return on sales and return ... Read Answer >>
5. ### What is the difference between operating margin and return on sales?

Discover how a small warning suggests a difference between return on sales, or ROS, and operating margin, two terms normally ... Read Answer >>

Hot Definitions
1. ### European Union - EU

A group of European countries that participates in the world economy as one economic unit and operates under one official ...
2. ### Sell-Off

The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
3. ### Brazil, Russia, India And China - BRIC

An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
4. ### Brexit

The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
5. ### Underweight

1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
6. ### Russell 3000 Index

A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...