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The Return on Sales Ratio helps a company measure its profitability
The Return on Sales Ratio helps a company measure its profitability
The return on sales ratio helps a company determine how profitable they are. It does this by showing the relationship between a company's net income and sales.
A low return on sales ratio may show that there are poor pricing decisions being made in the company, or it could indicate that there are high expenses that the company has to pay. This amount indicates the amount of profit that is generated per dollar of sales, and it is displayed as a percentage.
The operating profit in the equation is another way to say net income, and the net sales are equal to the total sales of the company.
Examples
Examples
Company XYZ generates $50,000 in sales, but it has costs of $30,000. Find the return on sales ratio.
Profit=$50,000-$30,000=$20,000
20,000/50,000=40%
In 2017, Apple Inc. had $48,351 million in profit and $229,234 million in sales. Find and interpret the return on sales ratio.
48,351/229,234=0.2109 or 21.09%
Apple generated a 21.09% profit for every dollar of sales, or 21 cents of every dollar of sales was profit.
Sources
Sources
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