ROS is the ratio between a company's Operating Profit and it's total Sales.
ROS tells us how much profit a company is generating per dollar of sales. As such, it is an important indicator of the company's operational efficiency.
It can be used to compare the performance of a company over time. An increase in return on sales implies that the company is getting more efficient while the opposite is a cause of concern. Also, because it is a ratio, it can be used to compare companies of vastly different sizes. Although, this comparison should be constrained to the same industry as the profitability varies a lot between them. For instance, a technology company is way more profitable than a grocery chain. Typically, companies have an ROS of around 5-10%.
Return on Sales is a ratio between the net income and sales of a company.
ROS = `i / s * 100`
For example, Maxotek Inc reports net profits of $500,000, interest expense of $100,000, and taxes of $150,000. The operating income of the company is:-
`500000 + 100000 + 150000 = 750,000`
The net sales reported for the same time period is 1,000,000.
Using the above to calculate ROS:-