Which statement best describes the Return on Sales ratio?

• A. Return On Sales Equals Operating Profit Divided By Net Sales
• B. Debt To Equity Ratio
• C. Price To Earnings Ratio
• D. Asset Turnover

Answer: (A)

Return on Sales measures how effectively a company turns sales into operating profit. It is calculated as operating profit (EBIT) divided by net sales, showing how much operating profit is earned from each dollar of sales. This focuses on the margin generated by core operations, before interest and taxes. For example, if operating profit is 50 and net sales are 500, the ROS would be 10%, meaning 10 cents of operating profit per dollar of sales. The other ratios listed assess different concepts: leverage (how much debt relative to equity), market valuation (price relative to earnings), or asset efficiency (how quickly assets generate sales). So the statement that ROS equals operating profit divided by net sales best describes the ratio.