Definition
Return on sales shows what share of revenue remains as the selected profit measure. For net margin, net income is divided by revenue; for operating margin, the operating result is used. “Profitability” covers a family of ratios, so naming the numerator is essential for correct interpretation.
Example
If hypothetical net income is 60,000 roubles on revenue of 600,000, net return on sales is 10%. A company with higher turnover may have a lower margin but a larger total profit. The percentage alone does not explain all differences between businesses.
Limitations
Margin should not be confused with markup: their denominators differ. A change in the measure may be caused by prices, product mix, costs, one-off income or a tax effect. An investor compares identical definitions over comparable periods and assesses the durability of the result rather than treating any high margin as a guarantee of future profit. Related reading: [income statement](/guides/income-statement/), [peer comparison](/guides/peer-comparison/), [net income](/glossary/chistaya-pribyl/) and [revenue](/glossary/vyruchka/).