What is ROS ?

 🎯  This indicator reveals in percentage terms the profitability of sales interpreted as operating return and self-financing capacity of the business to growth. The Return On Sales (R.O.S.) reveals in percentage terms how much of the operating income was generated by Revenue (net sales).

Hence the ROS (Return on sales) expresses the profitability of sales, that is, how much operating income is generated by each euro of turnover; will then cover the burdens of other management areas. This value depends on various factors including, primarily, the sales prices applied to customers and the structure of the company's operating costs.

This value comes from the ratio of the Earnings Before Interest and Taxes) to total Sales and it indicates how much the operating income that the company has earned per unit of Sales and it expresses the capacity of the company's management to produce profit from sales. 

🧠 EBIT ➗ Revenue 

💡 An example

Having a company with a R.O.S. that result of 10%, we may confirm that the operational management of the company absorbs 90% of the turnover and that therefore on the basis of its structure and costs the company in question may incur a loss when the turnover is now down by 10% compared to the previous year and therefore not to be profitable for the other management areas (ancillary, financial and tax area).

As can be easily understood, ROS is a direct consequence of the capacity to manage internal efficiency conditions and external market situations so it is an indicator that is easily influenced by macroeconomic variables, but early conditions affect the ability to contain costs and thus maintain an economic balance and to achieve volumes, the second conditions can influence for some companies changes in market prices both on the sales side and on the purchase side and finally on the variables of commercial nature.

There is a variant of ROS which is the "operating margin" ratio. The value indicates the percentage of gross operating margin that has been generated by the company's sales. It is slightly different from the Return On Sales (ROS) because it doesn't count non monetary costs running in the business activity of the company (typically accounted as Depreciation and Amortization), so that can give a deep insight in the company's profitability os sales in term of liquidity. 

The value of this ratio indicates the percentage of gross operating margin that has been generated by the company's sales.

It is slightly different from the Return On Sales (ROS) because it doesn't count non monetary costs running in the business activity of the company (typically accounted as Depreciation and Amortization), so that can give a deep insight in the company's profitability os sales in term of liquidity.