* Return on Sales (ROS) – ROS is the percentage of each dollar of sales that is left as a profit. For example if a company has $100 in revenue and $20 in profit, at the end of the period they have a ROS of 20%. ROS is best used when compared to other companies within the same industry. This is because different industries can have different levels of ROS depending on the competitiveness level. Competiveness can drive prices down overall in the industry, which will drive down ROS for all companies. A high ROS can indicate premium pricing in the industry or great efficiency where as a low ROS can be an indicator of financial trouble such as a company slashing prices just to garner…show more content… For example, Able could have sold an additional 0.2% of the market segment units of 14,937 and Acre an additional 1.9% of the market of 21,715 units. Doing that math for each product and applying the sales price and contribution margin shows a potential increase in sales of $74,484 (a 32% increase) and a margin increase of $26,286 (126% increase). This would have increase our ROS from 9.0% to 15.5%, which would have been tops in the industry.
By improving a forecast and production synergy, we will be able to capture closer to our market sales potential which will keep our inventory carry costs down and our ROS up.
* Return on assets (ROA) – ROA shows how successful a company is in generating profits on the amount of assets they own. Since assets consist of debt and equity, ROA is a measure of how well a company converts investment dollars into profit. The higher the percentage, the more profit a company is generating per dollar of investment. Similar to ROS, this ratio needs to be looked at compared to the industry as different industries have different requirements that can affect ROA. For example, companies in the airline and mining industries need expensive assets to operate so will have lower ROA’s compared to companies in the pharmaceutical or advertising industries. The table below shows our ROA for each year compared to the industry. The graph following shows the ROA for Andrews alone over time.