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Return on sales (ROS)

Method of calculation

Formula for return on sales (ROS), i.e. net profit margin: net profit / net revenues from sales * 100%

Ratio's description

Return on sales ratio extends the analysis of gross profit margin by showing how all the costs, including tax-related ones, affect the net revenues from sales.

Ratio's interpretation

  • The smaller the ratio's value, the greater the amount of sales has to be to achieve the desired net profit level (since the greater part of revenues is consumed by the costs).
  • High ratio's values and their increase over time are assessed positively, since they indicate competitive advantage of the company.
  • Low ratio's values and their decrease over time are assessed negatively, since they indicate insufficient control over the costs level, which affects competitiveness.

WARNING! The above interpretation is valid only if ROE, ROA, and ROS are simultaneously greater than 0.

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