This glossary uses Visual Finance™ to bring financial terms to life. Each example shows data from the Round Number Company, a fictional business with simplified figures to make learning easier. For more details, visit 'How to Read Visual Finance'.
Return on Sales is the Profitability ratio - it shows the portion of each sale that 'drops to the bottom line' as Profit.
Net Income is the Profit left for the owners, after all costs, expenses, interest and taxes have been paid.
Return On Sales (ROS) ratio: Net Income as a percentage of Sales
Example: The Round Number CompanySales = 200; Net Income = 30 Return on Sales = 30/200 = 15% |
Alternatively, ROS may be measured using Operating Income instead of Net Income; companies that measure performance using RONA will use this metric. In this instance, ROS shows the percentage of the sales dollars that are left after you have paid the Operating Expenses (COGS, overheads, SG&A), and does not include Finance Charges, Inventory Turns and Adjustments.
Return on Sales is part of Income|Outcome Triangle for Ratio Analysis. See also Return On Assets (ROA) and Asset Turnover (ATO) .
Return on Sales is also known as Profit Margin or Profitability.
The above is our generic explanations of common corporate financial terminology. Actual meanings can vary widely from company to company; in order to have the correct internal definition you need to ask your Finance Department, "What do you mean by that?"
term list.