What is the difference between return on sales (ROS) and operating margin?

Answer:

Return on sales (ROS) or operating profit is often used to describe the same financial indicators. The main difference between each use is that their corresponding formulas are usually written. Ultimately, however, investors and analysts can examine the sales margin and operating margin to be synonymous.

Investors, creditors and analysts use cost of sales and operating margins to compare with different capital structure in various industries. These figures do not take into account the way in which business receives their funding.

Operating profit and operating profit

The standard way of writing the formula for operating margin operating profit divided by net revenue. Profitability of sales is very similar, only the numerator is usually written as income before interest and taxes (EBIT); the denominator is still the net sales.

Most comparison operating income and EBIT to assume that they are identical. Strictly speaking, the operating profit is the official financial measure in accordance with generally accepted accounting principles (GAAP); profit before tax is a non-GAAP measure does not meet the U.S. securities and exchange Commission (SEC) requirements for financial disclosure.

According to the SEC, operating profit should not be considered as the most directly comparable measure to EBIT. Instead, he recommends the use of net income, GAAP are presented in the statement of activities. EBIT makes room for allowances according to GAAP is not recognised in operating income.

Some measurements operating revenues are considered non-GAAP. According to the Council on financial accounting standards (FASB), an invalid version of the operating income to exclude certain expenses and income that are not recurring.

(For associated reading, see “what is the ratio best reflects the capital structure?”)

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