Return on sales (ROS) – Formula

Return on sales (ROS)

A return on Sales or abbreviated with ROS is a Financial Ratio measures how efficient a company generates profit from sales revenue. In other words, the ratio of ROS or Return on Sales this measure the performance of the company by way of analyzing the percentage of the total revenue of companies.

That can be converted into profit or the profit of the company. ROS indicates how much profit or profits generated by the company after paying the variable cost of production such as wages, raw materials etc., but do not include the payment of taxes and interest.

Investors and creditors are generally interested in the ratio of this efficiency because it can indicate the percentage of the money earned by the company through its income during a given period. They can use these calculations to compare the company's performance from one period.

To the next period or comparing two different companies in the same business. Return on Sales Ratio in Indonesia can be call by a Sales Refund Ratio is also known as "Operating Profit Margin" or "Operating Margin".

The formula of ROS (Return on Sales)

 Return on Sales or ROS can be calculate by dividing operating profit with net sales for the period. Return on Sales is usually express by Percentages (%). The following is the formula of ROS (Return on Sales Constellation Formula).

ROS = earnings before Interest and Taxes/sales

As previously mention, that equation or formula ROS is not taking into account non-operating activities such as tax and financing structure. Interest charges and the tax burden is consider as non-operating costs. This allows investors and creditors understand and focus on the core business or operating company (core business) are concern.

Examples of Cases the calculation of Return on Sales

Organization produce a profit before Interest and Tax of $ 100 million while Sales was $ 1.5 billion. What is the Return on Sales or rate of return Sales organization?

Note:

Profit before tax and Interest = $ 100 million,-
= $ 1.5 billion Sales,
Return on Sales (ROS) =??



Answer:

ROS = (profit before Interest and Taxes/sales) x 100
= ROS ($ 100 million/USD 1.5 billion) x 100
= 6.7% ROS



So the return on sales or Return on Sales (ROS) organization is 6.7%.

Analysis and assessment of ROS (Return on Sales)

Because the equations or formulas ROS (Return on Sales) this is a measure of the percentage of sales. That are convert into profits, so with this ratio of investors can find out how well companies producing. The main product or service and also how well management business operates essentially to generate profits for the company.

The ratio of Return on Sales or increase ROS have indicate a more efficient performance of the company. While the ratio of ROS can indicate a declining will likely occur in the company's financial problems. However, in some cases, the Return on Sales or a low ROS can be offset by an increase.