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Homework > Success Measures > Criteria Definitions
RETURN ON SALES (ROS) Formula Description: You determine return on sales by dividing net profit by netsales. What Does Return On Sales Since return on sales (ROS) gives the analyst an idea of Tell You? the profit margin on a product, this ratio can reveal a great deal about product positioning andpricing policies. For example, a high ROS suggests premium pricing. This suggests the product will not be aimed at a commodity market. ROS is also a good indicator of demand and supply within theindustry. The more competitive an industry, the more pressure there is on price and subsequently ROS falls. For example, the ROS of the airline industry has been low due to intense competition in the lastfew years. Typical Range: The general acceptable range is from 2% to as high as 16%. Return on sales is very industry dependent. Here are some examples of figures from 2008: Coca Cola = 18.2% Merck =32.7% Ford = -10.0% Caterpillar = 6.9% AT&T = 10.3% RETURN ON ASSETS (ROA) Formula Description What Does Return On Assets Tell You? You determine return on assets by dividing net profit by your totalasset base. Return on assets is an efficiency ratio. It compares the profits generated with the asset base required. It answers the question, how hard are you working your assets? There is an economicopportunity cost notion associated with this ratio. An operating manager may be challenged with how a dollar spent on assets might do compared with a dollar invested in some other area (e.g., a bankaccount), or how the ROA compares with the interest a firm is paying on the money borrowed to pay for the asset. ROA analysis can generate interesting discussions surrounding investment in more flexiblemanufacturing capabilities versus higher inventory levels. This ratio is volatile. Here are some examples of figures from 2008: The Gap = 10.6% Deere and Company = 5.3% Coca Cola = 14.3% Boeing =...