Return on assets is caused by the product of Return on Sales and Asset Turnover ratios (see Performance Structure diagram). Thus, we may use these ratios to diagnose the strengths and weaknesses of the overall ROA efficiency. Accordingly, these ratios are assessed next. Return on Sales (ROS) This is a measure of the efficiency in generating profit on each dollar of sales. Positive values indicate the extent to which strategies of low cost, differentiation, or both, have been successful in generating revenues that exceed the cost of service or production: earnings earned per $1.00 in sales. A positive value is necessary to conclude the firm has achieved a competitive advantage; typically it must not only be positive but exceed 5%, due to "ordinary profit" requirements. Larger positive values increase the rate at which the firm may grow; more cash is available to finance the operating cash cycle. (Also known as Net Profit Margin). Q18. ROS conclusion, overall: a. the firm has a competitve advantage, and the advantage is improving. b. the firm has a competitve advantage, but the advantage is declining. c. the firm has insufficient competitve advantage, but performance is improving. d. the firm has insufficient competitve advantage, and performance is declining. Q19. ROS conclusion, performance relative to industry: a. Return on Sales is superior to the industry average performance due to the superior Gross Margin. b. Return on Sales is superior to the industry average performance due to the lower Operating Expenses. c. Return on Sales is inferior to the industry average performance due to the inferior Gross Margin. d. Return on Sales is inferior to the industry average performance due to the higher Operating Expenses. Q20. ROS conclusion, performance trend: a. Return on Sales improvement is due to the improvement in Gross Margin. b. Return on Sales improvement is due to effectively lowering Operating Expenses per dollar of sales. c. Return on Sales fell due to the decline in Gross Margin. d. Return on Sales fell due to the increase in Operating Expenses per dollar of sales. e. None of the above