Is the return on sales ratio a fair indicator of a company’s efficiency & profitability? 🧮 📈
In the world of key stakeholders of a company such as investors, creditors, and other analysts, there’s no arguing the importance of the return on sales ratio and its ability to accurately convey the actual profit a company makes on its total sales.
However, some suggest that too much emphasis is placed on the return on sale without taking into consideration things like market conditions, which can hurt a company’s strategy.
According to Study Finance, “Strictly speaking, [analysts] should only be using the ROS formula to compare different companies operating in the same industry or market. The results will be too different for an accurate comparison.”
Also, some suggest that return on sales should only be used on well-established companies. This is because newly incorporated businesses have a lot of expenditure when starting up like advertising and promotions that could skew the results of the ROS metrics.
Click here for a more in-depth look at calculating the return on sales ratio formula, what it is, what a good ratio looks like, and how to use it to improve your sales process.
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