Return on Sales Calculator

1. What is return on sales
2. ROS Formula
3. How to calculate return on sales

    What is return on sales

Return on Sales (ROS) is a financial metric used to estimate what percentage of sales are converted to profit and measures the efficiency and profitability of business ventures after accounting for all costs. It is calculated as the ratio of the company's net operating profit relative to the total value of its sales.

Obviously, a positive ROS means the company is making a profit while a negative ROS means it is registering losses. In the chart above, an operating profit below zero results in negative returns. The way a company can improve their profit to sales ratio is to either successfully cut costs or increase the operating revenue, or both. Of course, these measures need to be evaluated for both short and long-term effects since the two can be very different.

    ROS Formula

The formula for ROS used in our return on sales calculator is simple:

Return on Sales = Operating Profit / Net Sales x 100

Operating profit is also known as operating income in the U.K.. Both input values are in the relevant currency while the result is a ratio which is then converted to a percentage by a simple multiplication by 100.

The equation does not account for non-operating activities and expenses like taxes, interest payments, and others. Consequently our ROS calculator doesn't as well.

    How to calculate return on sales

Using the above formula, one needs to simply substitute the relevant values and use a calculator to arrive at the final value. For example, if the operating profit (income) of a company is $100,000 and it requires sales worth $1,000,000 to generate it, its return on sales is 10%. In other words, it makes 1 dollar of profit for every 10 dollars in sales.