Return on Sales (ROS)

Return on sales measures operating efficiency. It shows what share of revenue remains after paying the costs of running the business, before interest and taxes.

For example, a company with revenue of 1,500,000 and operating profit of 150,000 has a return on sales of 10%. For every 100 of sales, it keeps 10 as operating profit.

ROS is very similar to operating margin, and the two terms are often used interchangeably. Some analysts calculate ROS using net income instead, which makes it the same as net profit margin, so it is worth checking which definition is being used.

Comparing ROS over time shows whether a company is controlling costs and maintaining pricing power. Comparisons between companies are most meaningful within the same industry, since some businesses, such as supermarkets, naturally operate on thin margins, while others, such as software firms, can achieve much higher ones.