ROS stands for return on sales, which measures the amount of each dollar of sales the company keeps after accounting for the costs of operating the business. Companies with high returns on sales typically function more efficiently because they minimize costs. Companies with a high ROS could afford to lower their prices more if necessary for competitive reasons while still making money. However, return on sales is a limited measurement because it does not show where the costs come from, such as high payroll costs.
Subtract the cost of the goods from the total sales to find the operating profit. For example, if a company showed $890,000 in total sales and had $600,000 in costs, subtract $600,000 from $890,000. The operating profit equals $290,000.
Divide the operating profit by the total sales to find the return on sales measured as a decimal. In this example, divide $290,000 by $890,000 to get 0.3258.
Multiply the return on sales measured as a decimal by 100 to convert to a percentage. Completing this example, multiply 0.3258 by 100 to get a return on sales of 32.58 percent.
Use ROS to measure your own company's performance over time periods. Compare your return on sales to competitors. Use ROS in presentations to your lender, your employees, key vendors and investors.