To determine the profitability of sales, indicators are needed. The correct formula for profitability of sales by balance sheet with examples

Profitability is called various relative values ​​that determine the effectiveness of entrepreneurial activity. The sales profitability ratio shows how the company's specialists are able to control costs and implement pricing policy.

You can calculate the coefficient not only for a traditional enterprise, but also for a huge corporation with many divisions or industries. The value will depend on the industry, turnover rate and capital structure (leverage). Economic theory offers various options for calculating this indicator.

Formulas for calculating the profitability of sales of products

This ratio shows the share of profit in each ruble of revenue. The value depends on the industry, the scale of the enterprise and the duration of the production cycle.

The traditional formula for the profitability of sales:

• K = profit from sales / revenue without VAT and excise * 100%

For calculations, you can use the values ​​​​of gross, operating and net profit.

• gross ( VP) \u003d revenue (price * sales volume) minus the full cost of production or purchase of goods;
• operating room ( OP) = VP minus operating (current) expenses;
• clean ( state of emergency) – OP net of taxes.

The formula for the profitability of sales by gross profit:

• VP/revenue*100%.

The result is the amount of gross profit in revenue.

Operating profit value:

• OP/revenue*100%

The result is the amount of operating profit in revenue.

The formula for calculating the profitability of sales based on net profit (after tax):

• NP/revenue*100%

This ratio is important for enterprises with a small amount of equity capital and fixed assets. For the reliability of the analysis, it must be calculated for several periods. The coefficient can also be calculated for individual product groups.

In theory, there is also the concept of minimum profitability, which is equal to the average interest rate of a bank deposit. In practice, the minimum figure depends on the scale of the enterprise. A large supermarket will survive at 3-5%, and a mini-bakery will go bankrupt at 15%. That is, the situation at the enterprise is not always determined by relative indicators. But the statement is always true: “Increasing the sales profitability ratio is good, decreasing is bad.”

Reasons for the decrease in indicators and ways to increase them

Coefficients decrease if prices decrease, assortment changes, costs increase. Regardless of the cause, a decrease indicates an unfavorable situation. To identify the reasons, an analysis of costs, pricing principles, and assortment is carried out.

If the decrease is caused by a decrease in sales volumes, then there can be only 2 options: decrease in demand or unsatisfactory performance of the marketing department. The constant calculation of indicators allows you to quickly navigate the situation, find the reasons for the decline and eliminate them.

But it is not enough to know how to find the return on sales - the formula will not change anything. It is important to know how to improve performance. There can be several ways:

• cost reduction;
• cost reduction;
• increase in prices for certain groups of goods.

The first method is used most often. This may be a reduction in staff and a reduction in operating costs. The second way interacts with the first. For example, with a reduction in staff, the cost is automatically reduced. A less common way is to expand the enterprise in order to reduce the cost per unit of goods.

The third way is the most risky. Implementation requires caution, accurate calculations and expansion of the range. You can increase the price without the risk of losing regular customers for groups of goods that are bought at almost any price. Another option is to expand the range of very expensive, but elite products.

The role of the profitability ratio of the sale of goods in the analysis of economic activity

If the values ​​of the coefficients are calculated for several periods in a row, their comparison makes it possible to determine how competently decisions are made and how efficiently resources are used. It is advisable to start the analysis of indicators with a comparison with the values ​​for previous periods and the average indicators of the industry.

It is also important to take into account that the calculation results will not be correct if the profit of the enterprise has a large share of income from other activities. This means that only profit from sales should be taken into account in the calculations. Another nuance is the amount of borrowed funds. Interest paid on loans must also be deducted from net income.

From this article you will learn:

• How to calculate return on sales
• What is the formula for calculating return on sales
• How to calculate return on sales using an example
• How to increase sales profitability

One of the most important indicators of business performance is the profitability of sales - the ratio of revenue and net profit of the company. In the calculations, the role of the financial result can be played by various profitability indicators, and the profitability ratio can be determined in several different ways. Usually calculate the return on sales by net profit, by gross profit, or consider the operating profitability of sales. Let's figure out how to calculate the profitability of sales in a company and how to use this indicator in business management.

How to correctly calculate the profitability of sales and why it is necessary

The profitability ratio of sales is one of the key tools for assessing the effectiveness of commercial activities. This indicator makes it possible to track the dynamics of business development and conduct a comparative analysis of the company and its competitors.

Having calculated the profitability of sales, we can identify weaknesses in the assortment and pricing policy of the company, understand whether the business strategy as a whole has been chosen correctly, what are the results of the marketing campaign or the role of individual distribution channels. Such calculations should be done regularly in order to detect problems in a timely manner and promptly solve them. Although the analysis of profitability of sales alone is not enough to make serious management decisions.

To identify specific problems experienced by the company and find their causes, it is best to analyze the profitability of sales not in general, but in relation to individual products and product lines, types of services and work provided. For example, you can rank products by profitability ratio or calculate the profitability of sales in individual stores in a distribution network, and then compare these indicators with industry averages.

Any commercial enterprise operates for the sake of generating income. The main goal is to maximize profit. Many businessmen and managers understand this goal very narrowly - as sales promotion and increase in revenue by any means. All other factors - costs, dynamics of indicators, the amount of available resources, market conditions - are considered secondary and simply ignored. This is a very shortsighted approach. The assessment of business profitability should be systematic and comprehensive.

To assess the rationality of the use of resources - labor, financial, natural - and the feasibility of further investment in business, quantitative indicators of profitability are used. Profitability is an analogue of the efficiency in the economy, showing the ratio of costs and profits.

For commercial firms, it is not difficult to calculate the profitability of sales: this is the ratio of income received to the costs of doing business (production, sales, advertising, etc.). Non-profit structures also have a similar indicator that characterizes the effectiveness of the efforts expended and the work done.

The profitability of sales is considered in relation to a specific object, the efficiency and payback of which is to be assessed. Having determined this indicator (the share of income per unit of the object under study) for each reporting period, we obtain the dynamics of profitability, on the basis of which it is already possible to draw any conclusions.

Having calculated the profitability indicators, one can understand whether the company's own capital and its assets are optimally used, whether the investments will pay off. The analysis of the profitability of the company should begin with the collection of data and the calculation of the profitability of sales.

How to calculate return on sales using the formula

RO = (type of profit / indicator, the profitability of which must be calculated) × 100%

Here, the numerator indicates the amount of profit of the required type (net, gross, balance sheet, operating, sales profit), and the denominator is the indicator whose profitability we are interested in.

The company's financial statements contain all types of profit and loss, being the source of data for calculating profitability. The indicator in the denominator has a monetary (value) expression.

For example, we need to calculate ROTR - return on sales. We substitute in the denominator the volume of sales expressed in value form, that is, revenue (TR, or totalrevenue). To calculate it, we multiply the price P (price) by the volume of sales in quantitative terms Q (quantity):

TR = P × Q

How to calculate the profitability of sales by balance using an example

First, let's calculate the profitability of sales for a four-month period:

Return on sales ratio 2013-4 = 11096946/206277137 = 0.05 (5%).

Return on sales ratio 2014-1 = 3029468/46103337 = 0.06 (6%).

Return on sales ratio 2014-2 = 3390710/105675771 = 0.03 (3%).

A slight increase in the profitability of sales at the beginning of 2014 is noticeable, and then its sharp - twofold - decline. However, profitability remains positive.

Now let's calculate the profitability of sales under IFRS. We will use the information from the financial statements published on the company's website.

For a period equal to nine months in 2014, the return on sales ratio was:

ROS=3563/236698 = 0.01 (1%).

Let's calculate the same return on sales ratio a year earlier (for 2013):

ROS=17237/222353 = 0.07 (7%).

It is obvious that the profitability of sales in the company decreased by 6%: in 2013 it reached 7%, and a year later - only 1%.

Rates of return are determined depending on the type of activity of the company. If we neglect the specifics of the business and calculate the average indicators for the market, we get the following line:

The statistics of a company's profitability are usually of interest to the tax authorities. If the profitability of sales indicators differ from the average by 10% or more, this is already a significant deviation.

Having calculated and analyzed the dynamics of sales profitability, the business manager receives an accurate and objective assessment of its current state. This parameter shows how successfully the company copes with one of its main tasks - the sale of products to the final consumer.

Depending on whether the profitability ratio of sales rises or falls, one or another trend of business development arises.

1. A negative trend is observed when the profitability of sales is declining for several reporting periods in a row. Only its coefficient is taken into account, the decrease of which signals a decrease in the profitability of the business, and the absolute values ​​- revenue, expenses, etc. - do not matter.

To level the trend, it is necessary to analyze the situation and find the reasons for the decrease in sales profitability, and then take actions aimed at correcting this indicator, for example:

• revision of the pricing policy and approaches to the promotion of goods on the market;
• change in the assortment range (exclusion of low-income positions);
• optimization of costs - cash, labor, time, etc.

These measures are aimed at increasing the share of net profit in the total revenue received by the enterprise.

2. A positive trend is characterized by an increase in the sales profitability ratio, which is used to evaluate the profitability of a business. The growth of profitability is due to various reasons that determine its nature:

• Revenue is growing faster than the cost of doing business. This case can be considered the most favorable: the company manages to keep costs at the same level even in difficult situations.
• Both costs and revenues are declining, but the latter is falling slightly more slowly. This situation cannot be called optimistic, since the decrease in revenue in any case should be alarming. Although the increase in the profitability of sales can be considered an unambiguously positive phenomenon.

In the second case, in order to find out why revenue is falling, an additional thorough analysis of the company's activities and market conditions is needed. One should strive for situations of the first type, when revenues grow, but costs do not change or they can be reduced.

Raise the price of your products or services

Entrepreneurs are extremely reluctant to do this, believing that regular customers will be scared away by the new price, and the company will lose them. However, things are not always so dramatic. In some cases, a price increase not only does not scare customers, but also works wonders in terms of increasing the profitability of sales.

As an example, let's calculate the return on sales for a product that is in demand, based on the following data:

Suppose you decide to raise the retail price. All other indicators change as follows:

Thus, even a small change in the selling price leads to a noticeable increase in profits and return on sales. Even having lost part of the permanent clientele, the company still wins - its income is growing.

1. First, analyze the market situation, especially the pricing policy of competitors.
2. Be ready to justify the price increase (customers will ask you why, even resent, and you should be able to deal with such objections).
3. With a wide assortment range, testing prices on a large number of goods at once is a very time-consuming and difficult task, so it is better to start with any one commodity item that is popular with consumers.
4. The effectiveness of the pricing strategy is the lower, the more your customers are guided by the price when choosing a product.

It is possible that if the price of your product rises sharply, consumers may find it too expensive and switch to its analogues. Therefore, the method of increasing the profitability of sales by increasing prices requires a thoughtful analysis of all factors that affect the purchase.

Do not rely on prepayment

For some businessmen, losing part of the profits during the sale is more critical than ruining the relationship with the client. Considerations of momentary benefit come to the fore, and they simply do not think about a long-term development strategy. Perhaps, as a consumer, you have encountered the fact that the seller denied you any additional services when buying a small amount, considering it a waste of time and money, and expressed it quite frankly.

But when it comes to small services - to help the buyer bring the TV to the car, insert a SIM card into the phone, etc. - then it is stupid and short-sighted to refuse them. The client will perceive this as unfriendly, even rude, will no longer come to you for shopping and will go to another place where they will smile kindly, create comfortable conditions and actively offer help (even if the purchase will cost more in the end).

Fortunately, more and more companies are realizing the importance of a customer-centric approach and implementing it into their practice. Building relationships with consumers - both regular customers and potential buyers - has a positive effect on the profitability of sales.

Here are some tips for gaining customer confidence:

1. Small prizes, souvenirs when making large purchases (for example, a kilogram of oranges when buying a juicer).
2. Provide the buyer with the opportunity to return the goods without long questions and wrangling.
3. Offer a replacement when returning an expensive item.
4. Expedited delivery of orders to regular customers.
5. Partial compensation of the cost of the goods to those customers who were dissatisfied with the purchase.

And, of course, courtesy, attention to customer needs and a high level of service. At first glance, all this seems like unnecessary trouble and expense, but in the long run, your efforts will not only pay off, but also increase the profitability of sales.

Cut costs

This is a completely working and proven way to increase the profitability of sales, if used correctly and not to reduce the quality of goods and services. Calculate your current costs for the operation of the enterprise and see what kind of expenses you could refuse (reduce the staff, somehow reduce the cost of production, etc.)

Look for ways to reduce the cost of goods or services

This method follows from the previous one and works according to the same scheme: the lower the cost of a service or product, the higher the profitability of sales. How can you save money without losing the quality of the final product? How to improve the production process in order to achieve a better return on business?

The calculation of the standard value of return on sales for industrial enterprises and other organizations is extremely important in the management of the company. Knowing these indicators, it is possible to conduct a qualitative economic analysis and improve the efficiency of the enterprise. If a company wants to maintain its position in the market or even improve it, then it is very important to carry out such calculations for short periods. This will allow not only to better manage the organization, but will also provide an opportunity to respond in a timely manner to any changes in the market.

Basic concepts

Before understanding what the standard value of return on sales is, you need to understand what it is. In accounting, this concept means an economic indicator, by determining which you can find out the level of efficiency in the use of certain resources in an enterprise. Moreover, not only tangible assets are taken into account, but also natural, labor resources, investments, capital, sales, and so on. In simpler terms, profitability means the level of profitability of a business, its economic efficiency and the benefits that it brings.

Thus, it turns out that if the profitability indicator is below zero, then such a business is unprofitable, and it is urgent to increase this indicator, find out what influenced the occurrence of such a situation and eliminate the causes of the problem. The level of profitability is usually expressed in coefficients, but they are expressed for the profitability of sales as a percentage. The normative value can also indicate the efficiency of exploitation of the enterprise's resources; with normal values, the organization will not only cover costs, but also make a profit.

Profitability indicators

When calculating all indicators, it is very important to pay attention to such a concept as the profitability threshold. This indicator, or more precisely, the point, actually stands on the division of the unprofitable and effective state of the company. It serves as a comparison with the break-even point, reflecting at what point a loss-making business became efficient. To analyze the performance of the company, it is necessary to compare the actual profitability with the planned ones. In addition, the comparison uses data for past periods and the performance of competitor companies. But the coefficients, or, as they are also called, sales indices, are determined by calculating the ratio of total income to the main assets and flows.

Main groups of standards

The standard value of return on sales and profitability can be divided into certain groups, namely:

• Profitability of sales (profitability of the enterprise).
• Profitability of non-current assets.
• Return on current assets.
• Return on personal capital.
• Product profitability.
• Profitability of production assets and profitability of their use.

Using these indicators, taking into account the scope of the company, you can determine its overall profitability. To determine the return on assets, it is necessary to determine the efficiency of operating the company's own capital or its investment funds: it all depends on how the company's assets bring profit to it, how much of it, taking into account the resources spent on production. To calculate the return on assets, the ratio of profit for a specific period of time to the size of the company's assets for the same period is used. The formula looks like this:

• R assets \u003d P (profit) / A (size of assets).

The same indicators are used in the economy to calculate the profitability of the operation of production assets, investments and equity. For example, a joint-stock company, you can find out how effective the investments of shareholders in this industry are.

Profitability calculation

Profitability of sales (normative value) is an indicator of profitability, which is expressed in coefficients and represents a display of the share of income for each cash equivalent spent. To calculate the profitability of sales of the company, the ratio of net profit to the amount of proceeds is calculated. Calculations are carried out according to the formula:

• R prod. \u003d P (net income) / V (revenue).

This indicator is directly affected by the pricing policy of the organization, as well as its flexibility in the market segment where its products are involved. Many firms use various external and internal strategies to increase their own profits, as well as analyze the activities of competitors, the range of products they offer, and so on. There are no clear schemes, norms, designations of profitability. This directly depends on the fact that the normative value of return on sales is directly related to the specifics of the organization's activities. All indicators can only reflect the overall performance of the company for a specific period.

Basic formulas

To effectively manage sales and monitor the performance of the organization, the profitability of the enterprise is calculated. To do this, it is customary to use certain indicators, namely: gross and operating EBIT profit, balance sheet data, net return on sales. taking into account the indicator of gross income, it shows a coefficient denoting the share of growth from each earned cash equivalent. To calculate this indicator, they take the ratio of net income after the payment of tax levies to the total amount of funds for a specific period of the organization's operation. In other words, operating margin is equal to gross income divided by trading revenue.

It should be noted that this ratio must be included in the financial statements. But operating profit EBIT is equal to the ratio of EBIT to total revenue. However, this indicator reflects the total income before all interest and taxes are deducted from it. It is this formula that calculates the operating profitability of sales, the standard value in production, as well as other important values. It is believed that this ratio is between the general data on profit and the net earnings of the organization.

Profitability ratios

But the profitability of sales on the balance sheet is a coefficient, the calculation of which is carried out on the basis of data from accounting reports and represents a characteristic of the share of profit from the total revenue of the organization. The calculation of this coefficient is carried out according to the formula of the ratio of the total income or loss from the sale of products to the volume of revenue. To get the result, you just need to use ready-made data from the balance sheet of the enterprise.

The calculation of the net profitability of sales is carried out by the ratio of net profit after all payments to the total revenue. To carry out independent calculations of the standard value of the profitability of sales in trade, you need to find out how many products were sold and what income the organization received from this sale after it paid all taxes, taking into account other expenses related to operating activities, but without affecting non-operating expenses .

Analysis of results

Thanks to all these formulas, the company's specialists can calculate a wide variety of profits relative to the total revenue. But still, the dependence on the features of the main direction of the enterprise remains quite significant. If the profitability of sales, the standard value and other coefficients for several periods of the organization's activity were calculated, then the employees of the enterprise will be able to make a qualitative economic analysis. That is, these indicators will help to conduct operational management of the economic activity of the enterprise. In addition, this will allow you to quickly respond to fluctuations and changes in the market, which will undoubtedly help improve performance and provide the company with a steady income.

Indicators reflecting the normative value of return on sales are used in the calculations of operational activities. But it is not worth using them for long-term periods, since changes in the market occur quite often, and with such calculations it will not be possible to respond to them in a timely manner. They will help to solve daily and monthly tasks, helping to build plans for the sale of manufactured products.

Increasing profitability

There are ways to increase the standard value of return on sales. Among them, the following are considered the most common: reducing the cost of production by reducing the cost of producing goods and increasing the volume of goods produced, which will increase gross revenue. But in order to effectively use these methods, the organization must have enough labor and material resources. Again, to hold such events, you need to work with highly qualified employees or increase the level of professionalism of your staff through various trainings and using new methods and practices of the world economy that improve the skills of workers.

In order to increase the standard value of return on sales in terms of net profit, it is important to study what positions the organization's competitors are in, what their pricing policy is, whether promotions or other enticing events are held. And already having this data, it is possible to carry out an analysis of which factors it is advisable to use to reduce the cost of production. Moreover, for analytical activities, one should use not only data on competitors in the region, but also use information about the leaders of this market segment.

Conclusion

In order to increase the profitability of sales, the normative value by industry should be calculated using all the necessary formulas and an analysis of the data obtained should be carried out. It should be borne in mind that the increase in the efficiency of an enterprise is influenced not only by its pricing policy, but also by the assortment that it can offer its consumers.

Most often, the best solution to reduce the cost of production is the introduction of modern technologies into production. To understand whether this method will improve production, it is imperative to conduct an economic analysis and find out what costs are needed for this, how long it will take for the development of new equipment by employees, and after what period this investment will pay off.

When creating a business, an entrepreneur focuses on profit. The occurrence of losses requires a change in strategy. But first you need to find out the reason by analyzing the production.

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This tool allows you to control prices and production costs. But how to correctly calculate sales performance in 2019 and how to interpret the results?

General aspects

Return on sales in management practice is one of the most effective tools for analyzing results.

The level of the indicator allows you to evaluate the results of the company's work in dynamics, including in comparison with competitors.

Establishing profitability helps to determine the effectiveness of sales of certain categories of goods or evaluate the performance of certain distribution channels.

The necessary information is contained in the financial statements – and the table of contents.

But guided only by the above parameters, it is possible to calculate only general indicators for the activities of the enterprise as a whole.

Detailed analysis requires more detailed information. So, when calculating the profitability of a particular type of product, it is necessary to obtain figures relating to the profit and cost of a particular product.

Therefore, the calculation formula will need to include management accounting or accounting analytics data.

Legal regulation

The current Russian legislation does not provide for any standard regulating the calculation of profitability.

There is no standard methodology for determining the profitability of sales. As a rule, the calculations are based on the general principles of economics.

The indicators are based on a comparison of income and expenses. Moreover, the calculation procedure can be established by the internal standards of the organization.

Profitability analysis is carried out by comparing indicators in dynamics or by comparing the results with the results of competitors.

Some important nuances in determining the methodology for calculating the profitability of sales can be gleaned from.

General rules boil down to the fact that there can be no specific standard for the profitability of sales.

Any ratio above zero is already considered a good value. A negative coefficient indicates problems in the management of the company.

How to calculate return on sales

Mandatory sales appraisal is required when asset performance and production figures are highly valued, but the overall profitability of the company leaves much to be desired.

The algorithm of actions for evaluating sales is reduced to the following steps:

1. Determine billing period. It is desirable to carry out the analysis in terms similar to the periods of previous calculations.
2. Calculate the total revenue from the sale of the analyzed products.
3. Clarify in the accounting documentation the amount of profit remaining on the balance sheet of the company after paying taxes.
4. Find the ratio of net profit to total sales proceeds.

It is advisable to calculate the profitability for two periods. This approach will allow you to establish the effectiveness of the marketing strategy in dynamics.

Direct revenue growth is not always a positive result, since the reason for the increase can be explained by various factors. Of primary importance is the growth of net profit.

If the results of the calculation reveal a decrease in the indicator, then a more thorough analysis will be required.

For example, you may need to track the dynamics of sales for an individual client, for product groups, for a specific area.

Formula applied

Return on sales (ROS) is defined as the ratio of profit to revenue. That is, the calculation result shows what share of profit is present in the company's revenue.

The general formula used to calculate return on sales is as follows:

But according to international financial reporting standards (IFRS), the calculation of profitability can be carried out using different parameters.

Often, when calculating the value of net profit, it can be replaced by gross margin, operating profit, profit before taxes. The choice of the numerator is based on the purpose of the analysis.

How to calculate the balance

If the return on sales is calculated from the balance sheet, then the necessary data must be obtained from the income statement. Form 2 indicators allow you to define different types of profitability.

Accordingly, depending on the desired goal, different values ​​are used in the formula. The type of calculation formula depends on what kind of profitability should be determined.

By gross profit:

Operating income:
For net profit:
Important! If the goal is to compare the dynamics of indicators in different periods, then the same calculation formula should be used for each time interval.

The use of different methods of calculation will not allow to determine the real situation with sales.

How to find the ratio

The value found by the formula is expressed as a percentage, since the return on sales is a relative indicator.

That is, the result of the calculation just acts as a coefficient of profitability of sales. The ratio displays the sales efficiency in the selected period.

The economic essence of the parameter is the percentage of the profit share in each ruble of the proceeds received.

The purpose of finding the coefficient is to determine the amount of profit in the total share of revenue. For example, as a result of the calculation, the value turned out to be 20%.

This means that the net profit from the total amount of revenue is 20%. Accordingly, when comparing in dynamics, the higher the indicator, the better. But what value is considered optimal for sales?

What should be

There are no special standards for the profitability of sales. As a rule, the analysis is carried out on the basis of average statistical indicators of profitability by industry.

Each individual activity has its own rate of return. The average rating without reference to the types of activity has the following interpretations:

It is possible to compare the obtained indicator in relation to a particular industry by applying average statistical indicators by industry.

The figures are published on the official website of the Federal Tax Service. Note! Profitability indicators by industry should be taken into account when assessing the risks of a tax audit.

As a rule, tax authorities take into account the statistics of the profitability of the enterprise. A significant deviation is a difference of 10% or more from the average values.

What the result shows

By analyzing the profitability of sales, you can accurately and objectively assess the current state of the business.

This parameter reflects one of the most important results of the company's activity - the implementation of the final product.

The development trend of the company's activities is determined based on the increase or decrease in the coefficient.

negative

When, when comparing profitability of sales for several reporting periods, there is a decrease in the coefficient, there is a negative nature of the development of activities.

And it does not matter the change in the amount of revenue or the amount of costs. The profitability ratio decreases, and the decrease indicates a decrease in profitability.

To correct the trend, the company should review its actions and identify the reasons for the decline in the indicator. This may require:

• change in marketing and pricing policy;
• changing the assortment of goods, up to the exclusion of unprofitable positions;
• cost reduction (not only financial, but temporary, labor and others).

The purpose of the measures taken is to increase the share of net profit in the volume of total revenue.

Positive

An increase in the profitability of sales indicates an increase in the profitability of the activity. However, depending on the reasons, this improvement may have a different shade.

If the growth rate of revenue outstrips the growth of costs, then this trend can be considered favorable.

This means that the company manages to restrain the increase in variable costs that increase non-linearly in a particular situation.

When the increase in the indicator occurs due to the simultaneous decrease in costs and revenue, which decreases more slowly, then the situation is not so clear.

Formally, once the coefficient has increased, it is good. But the very fact of a decrease in revenue cannot be considered an excellent result.

In such a situation, an in-depth analysis is required to determine the reasons for the decrease in revenue. The best option is to increase revenue while reducing costs.

Video: how to calculate return on sales

With this result, it is necessary to find out what exactly influenced the change in the indicator. In the future, it is worth adhering to the policy of actions that led to the optimal result.

Factor analysis

Determining the reasons for the increase or decrease in profitability indicators is based on factor analysis.

It helps to determine the strengths and weaknesses of the activity and predict the subsequent development strategy of the enterprise.

Reasons for increasing revenue while reducing costs:

• increase in sales;
• change in the range of products;
• reduced cost control.

Revenue may decrease on the back of a slow decline in costs due to rising product prices and changes in the assortment.

The reasons for the simultaneous increase in revenue and expenses, which increase at a lower rate, are:

• cost reduction;
• increase in prices;

Revenue and expenses rise at the same time, with costs rising faster, for reasons such as:

• increase in the cost of production;
• high price level;
• structural change in the range.

Revenue declines with a simultaneous and slower reduction in costs in the event of loss of market power or the curtailment of production activities.

Revenue decreases and expenses increase at the same time if:

• wrong marketing policy;
• insufficient control over costs;
• range change.

Analyzing the effectiveness of the company, you should not rely only on the profitability of sales.

You need to take into account other indicators, since the level of sales does not always reflect the true state of affairs.

For example, a company with a huge sales volume may have a significant share of borrowed funds in working capital, which is hardly a successful business.

Financial analysis operates with various tools to assess the stability of the company's position in the market and the effectiveness of management decisions.

The main one is profitability calculation, which analyze the relative profitability, which is calculated as a share in the cost of financial resources or property.

You can calculate profitability:

• sales;
• assets;
• production;
• Capital.

The most striking indicator of the company's financial condition is the profitability of sales.

The indicator value is used for:

• Exercising control for the profit of the enterprise;
• Control of profit or loss of sales by product category;
• Monitoring compliance with tactical goals strategic;
• Comparisons of indicators with industry averages.

Return on Sales - Definition

Return on sales - this is a financial instrument that allows you to evaluate how much profit is included in each ruble that the company receives in the form of gross revenue as a percentage.

Profitability clearly demonstrates the share of profit occupied in commodity revenue.

Allocate the calculation of profitability:

• by gross profit;
• on profit on the balance sheet;
• operating profit;
• by net profit.

How to calculate the profitability of sales on the balance sheet?

Using the balance sheet data and form 2 (financial results), you can easily calculate the return on sales indicator.

RP = profit (loss) from sales / indicator of commodity revenue

• RP balance = line 050 / line 010 (form 2);
• RP balance = line 2200 / line 2010.

How to calculate gross and operating margin?

RPVP = VP / TV, where

VP- gross profit from the sale of goods;

TV- proceeds from the sale of goods.

Gross profit- the sum of all profits of the enterprise, the difference between commodity revenue and the amount of expenses that were used to produce products, that is, the cost.

OR = EBIT / TV, where

EBIT- profit before taxes or interest are deducted from it.

EBIT is the ratio between the company's net profit and total profit.

EBIT = PE - PR - NP, where

state of emergency- net profit;

ETC- expenses as a percentage;

NP- the amount of income tax.

Net return on sales

Level of net return on sales or RP on net profit is the share of net profit from the gross revenue of the enterprise.

This is one of the most obvious indicators of the effectiveness of the enterprise, as it shows how many kopecks of net profit are contained in one ruble of the company's sales.

RP Net = PE/TV, where

• state of emergency- net profit;
• TV- commodity revenue (gross revenue) of the enterprise.

These indicators can be obtained in two ways:

1. Find in the company's reporting, namely in form 2 "Statement of financial results"
2. If the first option is not acceptable for some reason, then you can independently calculate the necessary indicators.

TV = K*C, where

• To- the number of products sold in units;
• C- the price of a unit of production.

PE \u003d TV - S / S - N - R others + D others, where

• S/S- the total cost of production;
• H– taxes;
• R others- other expenses;
• D others- Other income.

Others include income and expenses from non-core activities of the enterprise:

• coursework difference;
• Income/expenses from the sale of various securities;
• Income from participation in capital.

Return on sales is a clear indicator for determining the share of various types of profit in the gross revenue of an enterprise.

Tracking the indicator of profitability over time, the manager of the company receives information about the dynamics of development and the pace of achieving the strategic goals outlined by the management of the enterprise.

Return on sales - value

Profitability of sales- this is a kind of litmus test for determining the effectiveness of the pricing policy of the enterprise. It can be used to control the costs of the firm.

Having made the necessary calculations, the manager of the company will see how much money will remain after covering expenses at cost and making all necessary payments (interest on loans, settlements with the budget, and others).

The profitability of sales indicator is a tool for analyzing the financial condition of the reporting period. It is not suitable for medium and long term strategic planning.

1. The PKP has grown.

This situation indicates:

• The increase in spending lags behind the receipt of funds from the activities carried out.

Prerequisites:

• Increasing commodity revenue, which is most likely associated with an increase in the volume of sales of goods or the provision of services. In this case, the so-called production leverage effect arises;
• Changing the range of products sold, which is a good alternative to increasing product prices to increase the gross revenue of the enterprise. This can significantly reduce the cost of production, which will also lead to an increase in sales revenue.
• Reducing costs is faster, obtaining cash flow of the enterprise.

Causes:

• Increasing the cost of production(goods or services);
• The range of products sold has changed significantly.

For any of these reasons, the profitability of sales grows formally. The share of profits will increase, but in physical terms it will remain unchanged or decrease.

Cause is a decrease in sales revenue. This increase in the indicator is not unambiguously positive. It is necessary to track the situation over time. As well as analyze the product range and pricing mechanism.

• The money supply from the activities carried out is growing, and the costs of the enterprise are falling.

Prerequisites:

• Change pricing policy;
• Sales structure changed;
• Costs have changed according to the regulations.

This state of affairs is the most acceptable and desirable for the enterprise. Further analysis in this case should be aimed at calculating the stability of the firm's position.

1. CRP has decreased.

This situation means that:

• Increase in money supply from ongoing activities I can't keep up with the increase in the company's expenses.

Prerequisites:

• Increasing costs against the backdrop of inflation;
• Changing the company's pricing policy towards maximum reduction in the cost of products (goods, services);
• Change in demand for goods;
• The decrease in the indicator is extremely unfavorable regardless of which of the reasons had the greatest impact.
• The decrease in the increase in the money supply from the sale of products is faster than reducing the company's costs.

Prerequisites:

• Product Demand enterprises fell significantly.
• The situation is fairly standard.. Almost every company has a seasonality of activity. However, it is necessary to analyze what is the reason for the drop in sales.
• Expenditures rose against the backdrop of a decrease commodity revenue.

Prerequisites:

• Reducing the cost of production(goods or services);
• Change in demand for various groups of goods enterprises.
• The trend is extremely unfavorable. It is necessary to control the sales structure, the pricing policy of the enterprise and the cost accounting system.