Helping a Firm Turn Around Financially

Helping a Firm Turn Around Financially
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Abstract
The paper analyzes causes of problems on return on sales (ROS), an analysis of the company for possible directions and measures a company can take to remedy the situation. A company uses net sales to measure profitability more accurately and calculate return on sales and therefore, it is essential to interpret ROS correctly to evaluate a firm’s profitability level and operations efficiency. Higher supplier’s costs may lead to problems in return on sales. Suppliers want to increase their revenue margin which may lead to increased cost of supply. The wrong valuation of stock may lead to problems in return on sales. A firm may undervalue its stock which might lead to a reduced level on return on sales ratio. ROS has a link between money flowing into the organization and what leaves the company for the daily expenditure. Improving return on sales can bring in more income or reduce expenditure. Increasing sales can help a firm to attain efficiency through fewer expenses and increased revenue

Helping a Firm Turn Around Financially
Return on sales (RoS) is a financial ratio that allows an organization to evaluate operational efficiency since it portrays how much profit an organization makes from various goods and services sold. A company reports different types of profits such as gross profit, net profit, and earnings after tax. A company uses net sales to measure profitability more accurately and calculate return on sales.

As such, it is essential to interpret RoS correctly to evaluate a firm’s profitability level and operations efficiency. However, such problems as intense competition, low prices, and higher suppliers’ costs may lead to problems in return on sales. A higher than ratio indicates that a company is performing well than others in the same industry while an average ratio suggests a need to enhance profitability.
Higher supplier’s costs may lead to problems in return on sales. Suppliers want to increase their revenue margin which may lead to increased cost of supply. Negotiating on the increased cost of supply may affect a business return on sales if the company is bargaining harder or seeking better suppliers. On the other hand, the wrong valuation of stock may lead to problems in RoS. A firm may undervalue its stock which might lead to a reduced level on return on sales ratio. An organization may lower its prices to generate sales which might minimize the level of RoS. Discount is an important marketing technique that many firms use to attract more customers and thereby increase sales. However, a company may get increased sales due to large prices cuts, but it might decrease the return on sales. As such, it is essential to maintain stable prices since offering constant discounts might make customers fail to pay for higher prices. Competition in the industry has a significant implication on an organizations return on sales ratio. The decline in sales transaction means low rate on return on sales while manageable competition leads to increased sales hence higher rate on return on sales.
Investors and other stakeholders usually look for a company with an efficient RoS ratio since it indicates the income a firm makes during a specific period. Return on sales is a significant tool that a company can use to compare performance between different companies in the same industry in a certain period (Albrecht, 2010). As such, return on sales data provides a significant aspect for the analysis of the company situation for future direction. Low level of return on sales means that a company should seek a company that offers low costs on supply. Additionally, a company should also analyze its ability to compete favorably in the market by embarking on various measures to increase sales and reduces costs.
Return on sales has a link between money flowing into the organization and what leaves the company for the daily expenditure. As such, improving RoS can bring in more income or reduce expenditure (Albrecht, 2010). Increasing sales can help a firm to attain efficiency through fewer expenses and increased revenue. The two approaches are significant aspects that help a firm achieve efficiencies through elements such reduced production costs and economies of scale. Economies of scale involve analyzing the situation to identify areas where a business can minimize expenses. Similarly, it consists of increasing sales to generate more revenue through enhanced production methods. Investigating the company’s activities can help identify aspects that require adjustments. Avoiding time wastage, for instance, can save on production costs and hence increased return on sales.

Reference
Albrecht, W. S. (2010). Accounting concepts and applications. Mason, Ohio: South-Western.