- The names for the same ratio
- How to read it
Return on sales (ROS) is net profit divided by net sales, shown as a percentage. It tells you the cents of each sales dollar left as profit after all expenses. OpenStax says: "The ratio of net profit to net sales is the net profit margin, also called return on sales." So ROS and net profit margin are the same number. For gross, operating and net margin side by side, see how to calculate profit margin.
Billed publishes this page. Definitions are quoted from the open textbooks OpenStax Introduction to Business 2e (published April 22, 2026; pages revised April 23, 2026), OpenStax Principles of Finance 2e (published June 24, 2026; pages revised July 6, 2026) and OpenStax Entrepreneurship (published January 16, 2020; pages revised June 17, 2026), opened on October 30, 2026.
The names for the same ratio
OpenStax's books word this ratio in different ways:
- Introduction to Business: net profit margin, "also called return on sales".
- Principles of Finance: profit margin. It says: "This ratio shows how much of each $1 of sales is returned as profit."
- Entrepreneurship: profit margin. It says: "The profit margin is the profit divided into the total revenue, described as a percent."
All three divide profit by sales. Check which profit figure a source uses before you compare results. This page uses net profit, as Introduction to Business does.
How to read it
OpenStax gives these readings:
- "The larger the ratio figure (the closer it gets to 1), the more of each sales dollar is returned as profit. The portion of the sales dollar not returned as profit goes toward expenses."
- "Higher net profit margins are better than lower ones."
- "The net profit margin is often used to measure the firm’s earning power."
- "“Good” net profit margins differ quite a bit from industry to industry."
So compare a business's ROS with its own past years, or with businesses in the same industry.
Return on sales inside return on equity
Return on sales is also one part of a wider measure. OpenStax says: "ROE in its basic form is useful; however, there are really three components of ROE: operating efficiency (profit margin), asset usage (total asset turnover), and leverage (equity ratio). This is known as the DuPont method."
Sample: one tutoring business over two years
The figures here are a sample, invented for this example.
- Year 1: net sales $80,000 and net income $6,400. ROS = $6,400 ÷ $80,000 = 0.08, or 8%. That's 8 cents of profit on each $1 of sales, and 92 cents going to expenses.
- Year 2: net sales $95,000 and net income $9,500. ROS = $9,500 ÷ $95,000 = 0.10, or 10%. That's 10 cents of profit on each $1 of sales.
- Change: 10% − 8% = 2 percentage points more of each sales dollar kept as profit.
Where Billed fits
Billed's expense tracking page says: "The expense report shows what you spent over a date range, and the income vs expense report compares income with expenses so you can see how profitable the business is." Take net income and net sales for the ratio from your income statement, and ask your accountant if you're unsure which figures to use.
Related Articles
- How to Calculate Profit Margin: Gross, Operating and Net
- What is Gross Profit? A Simple Guide for Small Business
- What Is Contribution Margin? A Simple Guide for Small Business
Frequently Asked Questions
What is return on sales?
OpenStax says: "The ratio of net profit to net sales is the net profit margin, also called return on sales."
Is return on sales the same as profit margin?
Yes, as OpenStax uses the terms. Introduction to Business calls net profit margin "also called return on sales", and Principles of Finance calls the same ratio profit margin.
How do you calculate return on sales?
Divide net income by net sales, then multiply by 100 for a percentage. In this page's sample, $9,500 ÷ $95,000 = 10%.
What is a good return on sales?
OpenStax says: "“Good” net profit margins differ quite a bit from industry to industry." Compare with your own past years or with businesses in the same industry.
How does return on sales relate to return on equity?
OpenStax lists profit margin as one of "three components of ROE: operating efficiency (profit margin), asset usage (total asset turnover), and leverage (equity ratio)."