Return on sales, asset turnover, and ROE

Another common financial ratio is return on sales. Return on sales is a measure of a company's profitability. Return on sales is computed as net income divided by total revenue. For Walmart, return on sales is two percent, computed as $10 billion of net income divided by $500 billion in revenue. This means that if Walmart has sales of $100, the shareholders of Walmart get to keep two dollars after all the expenses, including interest and income taxes, have been paid. This return on sales number is also sometimes called the profit margin. By comparison, Target's profit margin is a robust four percent. If we had the time, we could do an interesting item by item comparison of Walmart and Target to see why Walmart's return on sales is just half as large as Target's. Now for a high-tech company such as Google or Apple or Microsoft, return on sales is often over 20 percent. The sales of high-tech businesses can be very profitable. Businesses like Target and Walmart that sell groceries and…