Which measure signifies a company's ability to produce profits relative to sales?

The measure that signifies a company's ability to produce profits relative to sales is return on sales. This financial metric indicates the efficiency of a company in converting its sales into actual profit. It is calculated by dividing net income by total sales revenue, providing a clear picture of how well a company is managing its overall operations and expenses in relation to its sales figures.

Return on sales is valuable for stakeholders because higher values suggest that a company is effective at generating profit for every dollar earned in sales. It helps compare performance among companies in the same industry, reflecting how well a company is positioned to control costs and maximize profitability from its sales activities.

While return on assets measures how effectively a company can use its assets to generate earnings, and return on investment assesses the return earned on an investment relative to its cost, neither of these specifically focuses on the profitability generated from sales alone. Additionally, the long-term debt ratio relates to a company's financial leverage and does not provide insight into profitability from sales. Thus, return on sales is the most appropriate measure in this context.