Generically, return on sales (ROS) is an efficiency measure defined as.

ROS asks “How hard are we working each dollar of sales?” This is a pure income statement relationship. However, if ROS is used alone, we could infer its effect upon the balance sheet and the financial structure.

1. Profits. From the cumulative profit discussion, we know the company needs to expand its asset base to increase profits.
2. But management wants a small sales base. If they have a smaller top line, and produce average profits, they can keep ROS high.
3. Management will likely respond with a niche strategy: a) Playing in fewer segments lets them expand assets within the segments. For example, they could concentrate their starting products in low technology segments, or they could retire the low tech products and replace them with new, high tech products with the recovered capital. b) Similarly, sales will be near the overall industry average in a niche strategy. Although they give up some segments, they have higher sales in their target segments.
4. Management will avoid debt, and move to retire existing debt to reduce interest payments.
5. Plant investments will be relatively modest.
6. Management is under no pressure to minimize assets, particularly current assets.

ASSETS MINIMALLY INCREASED TO EMPHASISE ROS