Return on Sales
on sales or net profit margin measures the net income earned for each
dollar of sales.
sales equals net income divided by net sales.
income is the profit of the business after tax.
sales is total less any returns.
with your return on sales or net profit margin
on sales or net profit margin is one of the most commonly used measures
of profitability. It represents the final bottom line. When comparing
your net profit margin with those of competitors, it is important to
consider the relative size of the companies. Usually there is an advantage
with larger companies as they can spread their fixed costs or overhead
across a larger amount of sales. In addition, larger companies may be
able to buy in larger quantities and get lower costs on materials.
monitoring changes in your gross margin percentage over time, you can
better understand the financial dynamics of your business and run it
more effectively. Here is a worksheet
you can use to track changes in this and other important measures.