Return on sales (ROS) is a ratio used to evaluate a company’s operational efficiency that shows how much of your overall revenue results in profit versus paying down operating costs. This measure provides insight into how much profit is being produced per dollar of sales. An increasing ROS indicates that a company is growing more efficiently, while a decreasing ROS could signal impending financial troubles. ROS is very closely related to a firm’s operating profit margin.
To calculate return on sales, subtract your expenses from your revenue and divide that figure by your revenue.
Return on Sales = (Revenue - Expenses) / Revenue
Suppose your business had $500,000 in sales and $400,000 in expenses this past year which means that there is $100,000 in profit. You would then divide that profit figure by your total revenue of $500,000 — giving you a ROS of 20%. In other words, the ROS ratio of 20 percent means your company generates 20 cents of profit per dollar of sales.