UK Accounting Glossary
Return On Sales (ROS) is a popular ratio used to evaluate a company’s operational efficiency as well as its profitability. Return On Sales reflects how resourcefully each dollar of sales revenue is used, and how well the company manages costs. ROS is also known as a company’s Operating Profit Margin.
A higher Return On Sales indicates that a company is likely to cope well with circumstances such as a sales downturn, increasing costs, or a fall in prices; and how a company may fare when entering into a price war. ROS can be helpful in analyzing companies with seasonal income patterns, or those with substantial depreciating assets or capital investment.
Note that ROS does not reveal any information about sales costs, overheads, labour or materials. ROS varies greatly depending on the sector concerned. For instance, supermarkets depend on high volume sales and will consequently tend to report lower returns. Return On Sales has long been a significant ratio in the retail sector.
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This glossary post was last updated: 22nd March 2020.