Continue the Learning: Apply Return on Sales to Your Business
eliza hl
Published Date
Instructions
1. Select a Company for analysis (your company, a customer, a competitor, or a company you are considering investing in).
2. Use the Visual Finance App OR locate an annual report for the company and open the Income Statement (and get out a calculator)
The annual report will show financial data for the reporting year and 1 or 2 years previous. Remember it may have a different name:
- Statement of Earnings
- Profit and Loss Statement (P&L)
- Statement of Profit and Loss
- Statement of Operations
- Statement of Comprehensive Income
3. Look at the Return on Sales for each year.
You can find an ROS calculator at the Return on Sales entry in the Visual Finance Glossary.
4. Identify Key Factors:
Analyze the components that affect ROS, such as revenue growth, cost management, and expense control. If there is a dramatic change in the ROS ratio, you will need to look more closely at the Income Statement to identify what is driving the change.
- Look for any one-time events or unusual items that impacted the ROS.
- Events that are not part of regular operations will be detailed in Adjustments (near the bottom of the Income Statement).
- You may find additional information in the Notes to the Financial Statements.
5. What is Your Analysis?
- Did the ROS increase or decrease? By how much?
- What might have contributed to this change (e.g., changes in revenue, cost of goods sold, operating expenses)?
6. Bonus Points: Use the Visual Finance App to quickly bring up one or more competitors for your selected company. Which company has the better ROS? Can you determine why?
This Return on Sales exercise drives deeper insights into a company's operational efficiency and profitability. Happy analyzing!
