What is ROS? How much ROS index is good?

“Viindoo Sales software??” is always a question investors ask when considering the financial situation of a business. This index of a business provides information on how to manage profits while doing business. And to learn more information about the ROS index, follow Viindoo's following article.

1. What is ROS?

ROS index (Return on Sales) is an important indicator in business and finance. This index helps evaluate the business performance of an enterprise. ROS reflects the profit a business earns from net revenue. This means that ROS shows how much profit a business makes from each dollar of revenue.

2. What ROS index is good? Meaning of ROS on financial statements

ROS is usually expressed as a percentage (%). The higher this index, the more effective and profitable a business proves to be. ROS index Helps businesses evaluate their ability to convert revenue into profit. From there, businesses can evaluate the effectiveness of business and cost management strategies.

When ROS is greater than 0, it means the business is profitable. This shows that the business has the ability to control costs effectively, operates well and has growth potential.

On the contrary, if the ROS index is negative (less than 0), this shows that the business is experiencing losses. Operating expenses are exceeding revenue. This is a warning signal that businesses need to adjust their business strategies or control costs better.

3. Formula to calculate ROS

ROS index (Return on Sales) is an important financial measure, calculated by dividing profit after tax by total revenue. Formula to calculate ROS As follows:

ROS = (Profit after tax / Net revenue) X 100%

In there:

• Net revenue = Revenue from selling products/services - Deductions
• Profit after tax = Profit before tax - Taxes

Pre-tax profit can also be calculated as follows:

• Profit before tax = Total revenue - Fixed costs - Incurred costs

Practical examples:

Medical device manufacturer Medtronic plc filed its annual report Form 10-K with the SEC on June 23, 2022 for the fiscal year ended April 29, 2022. This report includes Tables Consolidated Report for fiscal years ending 2022, 2021 and 2020.

Below is a table presenting the ROS index from the company's financial statements.

According to the financial report, we have financial information for 2022:

• Net revenue: $31,686 million
• Profit before tax (EBIT): $5,752 million

Medtronic's ROS index calculation formula:

ROS = EBIT / Net Revenue

⇒ ROS = 5,752 / 31,686 = 18.2%

⇒ Medtronic's ROS index = 18.2%

4. Ways to improve ROS index

ROS index (Return on Sales) is an important measure that reflects the business performance of an enterprise, indicating the ratio of profit to net revenue. Businesses can refer to and apply the following measures to improve the ROS index:

• Refine your pricing strategy: Adjusting prices helps increase revenue and improve profits. Businesses need to carefully research the market and customers to determine a reasonable price that truly reflects the product value.
• Improve product and service quality: Quality is always the key factor to retain customers. By improving product and service quality, businesses can increase the average value of each order. At the same time, businesses can also minimize costs due to defective products or poor service.
• Cut down the costs: Analyze production processes, supply chains and operating costs. This aims to find areas where costs can be reduced without compromising quality. From there, businesses can increase the profit-to-revenue ratio.
• Focus on high-profit products/services: Identify and focus on the most profitable products or services. This helps optimize resources and increase profit-to-revenue ratio.
• Market expansion: Growing a customer base can lead to higher sales volume, even if profit margins stay the same. This will help businesses increase total profits and improve ROS index.
• Optimize Marketing costs: Make sure your marketing spend is working as expected. Businesses can use data-driven marketing strategies to ensure they are targeting the right customers.

The application of overall business management software can play an important role in improving and optimizing the ROS index. These software provide a unified management system, helping businesses monitor, analyze and adjust business activities, thereby increasing operational efficiency and optimizing profits. In particular, businesses can refer to Viindoo's overall business management software. 

Viindoo is All-in-One management software, from finance, accounting, to production, warehouse, yard, human resources,... all are integrated on Viindoo's ERP software system. By effectively managing every aspect of a business such as inventory, production, finance, customers and data analysis, Viindoo software helps businesses reduce costs, increase revenue and significantly improve profitability. ROS number.

Besides, Viindoo Business Management Solution also has the following outstanding advantages:

• All business activities, from production management, finance, human resources to sales, are centrally managed on a single platform.
• Connect data seamlessly, automate processes, eliminate manual work, reduce errors and save significant time.
• Multi-layer security system, along with a team of experienced security experts, ensures absolute safety for business data.
• As long as there is an internet connection, users can access and work with the system from any device, anywhere.
• No need to invest in hardware infrastructure, minimize initial costs, and easily expand scale as the business grows.

In the above article, coming compiled the information to answer the question "What is ROS?” along with ways to calculate and improve the ROS index. Hopefully this article by Viindoo will be useful and businesses can calculate financial ratios more effectively. Let Viindoo Sales software accompany your business to improve financial indicators better.