Return on Sales (ROS) Calculator
This calculator determines the Return on Sales (ROS), a profitability ratio that measures how much profit a company generates per dollar of sales.
Input Fields
Understanding Return on Sales (ROS)
What is ROS?
Return on Sales (ROS) is a financial metric that shows how efficiently a company converts sales into profits. It's expressed as a percentage of revenue.
ROS Formula
The formula to calculate ROS is:
ROS = (Net Income / Revenue) × 100
Interpretation
- High ROS: Indicates strong profitability and cost control.
- Low ROS: Suggests high costs relative to sales or pricing pressures.
Real-Life ROS Examples
Example 1: Tech Company
Scenario: A tech company reports $2M net income on $10M revenue.
Calculation: ROS = ($2M / $10M) × 100 = 20%.
Interpretation: The company earns $0.20 profit per dollar of sales.
Example 2: Retail Business
Scenario: A retailer has $500K net income on $5M revenue.
Calculation: ROS = ($500K / $5M) × 100 = 10%.
Interpretation: Typical for low-margin industries like retail.
Example 3: Startup (Loss)
Scenario: A startup loses $300K on $1M revenue.
Calculation: ROS = (-$300K / $1M) × 100 = -30%.
Interpretation: Negative ROS indicates unprofitability.
Example 4: Manufacturing Firm
Scenario: A manufacturer earns $1.5M net income on $15M revenue.
Calculation: ROS = ($1.5M / $15M) × 100 = 10%.
Example 5: Service Business
Scenario: A consulting firm has $400K net income on $1M revenue.
Calculation: ROS = ($400K / $1M) × 100 = 40%.
Interpretation: High ROS is common in service industries with low COGS.
Frequently Asked Questions
1. What is a good ROS percentage?
Varies by industry. Generally:
- 5-10% = Average
- 10-20% = Good
- 20%+ = Excellent
2. How is ROS different from profit margin?
ROS is synonymous with net profit margin. Both use net income in their calculation.
3. Can ROS be negative?
Yes, if net income is negative (the company is losing money).
4. What if my revenue is zero?
ROS is undefined (division by zero). This suggests no sales activity.
5. How often should ROS be calculated?
Typically quarterly or annually, aligned with financial reporting.
6. What improves ROS?
Increasing revenue, reducing costs, or both.
7. Is EBIT used instead of net income?
Some analysts use EBIT (Operating ROS), but standard ROS uses net income.
8. Why is ROS important?
It measures operational efficiency and compares profitability across companies.
9. Limitations of ROS?
Doesn't account for capital structure. Use with other metrics like ROE.
10. ROS vs. Gross Margin?
Gross margin uses gross profit, while ROS uses net income (after all expenses).
