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What is the difference in Profit percentage and ROS percentage?

Deborah Edwards

in Higher Education

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James Washington on June 30, 2018

The formula for ROS is simply:. operating profit / total sales) × 100 = percentage return on sales. For example, if a company earns $150 per sale with a value of $950, ROS is:. 150 / 950 = 0.158 × 100 = 15.8%. What You Need to Know . Although it is practical, simple to measure, ROS does not reveal any information about the costs of the sale, or contributing factors such as overhead costs (including administration, sales and production), labor or materials. . A version of ROS takes the operating profit before deduction of interest and taxes; on the other, after deductions. This doesn't make much difference which one is used-although the first is going to produce a higher ratio-provided that like is compared with like. . Operating income may include items that are unusual or subsidies that affect ROS, which could mislead an unwary investor. . ROS varies greatly depending on the sector concerned. For example, the supermarkets rely on high volume of sales and, consequently, tend to report lower profitability. . ROS has long been a significant share in the retail sector, where companies use to compare their performance with that of competitors and the industry as a whole. . Return on Sales (ROS) indicates a company's operating profit (or loss) for a given period, usually a year. Essentially, the formula is profit divided by sale revenue, expressed as a percentage. ROS is a useful measure of a company, the operational efficiency, as well as their profitability. It reflects how resourcefully each dollar of sales revenue is used, how the company manages those costs, and how it responds to the difficulties as a decline in sales, increased costs, or a fall in prices. A higher ROS indicates a firm is likely to deal with such circumstances, and may be able to resist against cutting prices or enter into a price war. ROS can be helpful in analyzing companies with seasonal or irregular income patterns, or those with a large volume of depreciating assets-perhaps as a result of the considerable capital investment. (MORE)


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