Caterpillar article

1. Caterpillar uses “return on sales” as a financial measure. What is return on sales and when should a company use it? If the return on sales ratio indicates a problem, what can be done to correct the issue?

The return on sales ratio compares after tax profit to sales. It can help an operation determine if they are making enough of a return on their sales effort. This should be used if a company is experiencing a cash flow crunch, because its mark-up is not enough to cover expenses. Return on sales can help point this out, and allow you to adjust prices for an adequate profit. Also, this figure can be used to spot trends … if the return on sales appears to be dropping over time, it could be a signal that an organiz...