Return on Sales, or ROS, is an investment metric which basically reflects how profitably a company is running. That is, “return” here is profits. And “sales” is, well, the stuff you sold.
So return on sales is a profitability index. It speaks to how profitable a given industry or company runs.
Take Weyerhauser, the paper and pulp company that kills trees and makes them into paper. In a good year, they have 5 billion dollars in sales, and profits of $250 million. Really low margin business, especially when you consider that so many years aren’t good. But the Google search biz? It’s a bunch of servers, an algorithm, and...not much else. So in a given year, on sales of 20 billion bucks, it’ll have returns of something like $15 billion, pre-tax.
The basic notion is that you will see the term “Return on” a ton of other terms, like “capital” or “assets” or “equity,” and almost always the return is profits.
And from that ratio of return on whatever (in this case, return on sales), investors can impute a profit margin, which then derives the valuation and/or various metrics important to understanding a given security investment.