What is Return on Sales?
Return on Sales (RoS) is a financial measure used to evaluate the efficiency of a company’s sales. It is calculated by dividing the company’s operating profit by its total sales over a given period of time. The resulting ratio helps to indicate a company’s ability to generate profits from its sales and is an important metric for investors and analysts to consider when evaluating the company’s performance.
How to Calculate Return on Sales
Return on Sales is calculated by dividing the company’s operating profit by its total sales. Operating profits exclude any non-operating activities such as interest income, taxes, and other income. Return on Sales = Operating Profit / Total Sales
Benefits of Return on Sales
Return on Sales is an important metric for investors and analysts to consider when evaluating the company’s performance. It helps to indicate a company’s ability to generate profits from its sales and provides an indication of the company’s overall financial health. The higher the return on sales, the more profitable the company.
Examples of Return on Sales
For example, if a company has an operating profit of $1 million and total sales of $10 million, its return on sales would be 10%. If the same company had an operating profit of $2 million and total sales of $10 million, its return on sales would be 20%.
Conclusion
Return on Sales is a useful financial measure for investors and analysts to consider when evaluating a company’s performance. It helps to indicate a company’s ability to generate profits from its sales and provides an indication of the company’s overall financial health. For more information on Return on Sales and other financial metrics, please refer to the following resources: • Investopedia: Return on Sales • Investopedia: Key Metrics to Analyze Earnings Reports