How the product profitability indicator is calculated. How to calculate the return on sales: what it is and how it is displayed. The essence and composition of the concept

Product profitability is included in the profitability indicator system. What is the essence of this indicator, how to calculate it and what it can tell the tax authorities about, read this article.

What is profitability for?

Each owner of the enterprise, its potential or real investor is interested in receiving information about how effectively it functions. Financial analysis helps us to assess the effectiveness of the business. With its help, you can get an idea of the current activities of the company, or you can make a forecast. Also, financialization is used before starting, for example, to develop business plans or development strategies. In this case, an important place is occupied by the analysis of profitability.

Profitability is a relative measure of profitability. This is not a single indicator, but a whole system, a set of indicators. The main ones are the profitability of sales, assets, equity, as well as the profitability of products. We will talk about the latter in this article.

Read about the return on equity in the article "Determine the return on equity (formula)" .

Product profitability - what is it?

Product profitability is the ratio of profit to cost, that is, to the cost of producing and selling products. It provides interested parties with information about how much profit is given by each ruble spent on production, that is, it shows the return on costs incurred.

How to calculate product profitability

Calculate both the profitability of the product as a whole for the company, and the profitability of individual types of products.

The general formula for its calculation looks like this:

Rpr = Pr / Ss × 100,

Rpr - product profitability;

Pr - profit;

Сс - cost price.

However, taking into account the objectives of the analysis, the profitability of products can be considered:

by net profit or by profit from sales;
full cost of production or only for production.

Depending on this, the final calculation formula will also differ.

Formula of product profitability by balance

To calculate the profitability of products, Form 1 of the balance sheet is not required. All the information necessary for the calculation is in the statement of financial results (form 2).

For more information on the balance sheet, see the article "Filling out form 1 of the balance sheet (sample)" , and about form 2 - "Filling out form 2 of the balance sheet (sample)" .

Here are the possible calculation formulas.

The formulas for product profitability in terms of net profit and total cost is as follows:

Rpr = Line 2400 of Form 2 / Sum of lines 2120, 2210 and 2220 of Form 2 × 100.

The profitability of products in terms of net profit and production cost is calculated using the formula:

Rpr = Line 2400 of form 2 / Line 2120 of form 2 × 100.

For the profitability of products in terms of sales profit and total cost, the following formula is used:

Rpr = Line 2200 of Form 2 / Sum of lines 2120, 2210 and 2220 of Form 2 × 100.

And for the profitability of products in terms of profit from sales and production costs - the formula:

Rpr = Line 2200 form 2 / Line 2120 form 2 × 100.

The profitability of sales, calculated as the ratio of profit from sales and the total cost (see calculation formula No. 3 in this section), on average in the country at the end of 2016 is at the level of 8%. However, it varies greatly across industries. Therefore, you should compare your profitability with the industry average.

Low product margins - a beacon for tax officials

In conclusion, we note that the profitability of products is one of the criteria for assessing the risk of falling into the plan of tax audits provided for by order of the Federal Tax Service of Russia dated May 30, 2007 No. MM-3-06 / [email protected] The deviation of profitability from the industry average by 10 percent or more is considered critical. This is a kind of signal to the tax authorities to place the organization under control. The industry average values of product profitability since 2006 are given in Appendix 4 to the order of the Federal Tax Service of Russia dated May 30, 2007 No. MM-3-06 / [email protected] We recommend checking your profitability against these values. View the industry average profitability (download Appendix 4 to the order of the Federal Tax Service of Russia dated 05/30/2007 No. MM-3-06 / [email protected]) is available on the website of the tax service.

Outcomes

Calculation of the profitability of products is necessary both for assessing the efficiency of production, and for planning interaction with tax authorities. If the profitability indicators of the organization are less than the industry average by 10 percent or more, this means that it falls into the risk zone and can be included in the plan of on-site tax audits.

The desired result of the activity of each enterprise is profit. However, profit in absolute terms (in rubles, thousands or millions) is just a figure in the income statement. For the owner or investor, it is, of course, important, but not informative enough. In order to understand how hard this profit was obtained, there are relative indicators of profitability, called profitability indicators. One of them is production profitability.

The profitability of production correlates the amount of profit received with the amount of funds that allowed it to be obtained, shows the amount of profit per 1 ruble. spent production assets. The less funds are used to obtain a certain amount of profit, the higher the profitability of production, and therefore the higher the efficiency of the company.

For other profitability indicators, read our articles:

"We determine the return on assets (the formula for the balance sheet)"
"Determine the return on equity (formula)"

Production profitability formula

The profitability of production is the ratio of the total amount of profit (balance sheet profit) to the average annual cost of fixed assets and working capital.

The formula for calculating the profitability of production is as follows:

Rproduct = Pr / (OF + OBS) × 100,

Rproizv - production profitability;

OF - the average for the billing period, the cost of fixed assets;

ОС - the average cost of working capital.

Where to get numbers for calculation

Information for calculating the profitability of production is taken partly from financial statements and partly from accounting analytics.

So, we get the amount of balance sheet profit from the statement of financial results - from line 2300 "Profit (loss) before tax" of Form 2.

Read more about this report in the article "Filling out form 2 of the balance sheet (sample)" .

The data for the denominator of the fraction will most likely have to be searched for in analytical accounting ledgers. Taking numbers from the balance sheet is unlikely to work. For example, because it reflects the aggregate data on the fixed assets of the enterprise, and to calculate the profitability of production, the remainders of the production assets are needed. This means that you need detailed information about the OS.

Production profitability, product profitability and sales profitability - is there a difference?

Of course there is. These are separate types of profitability, three independent indicators. It has already been said above that the profitability of production shows the share of profit per 1 ruble. spent production assets.

In turn, the profitability of products demonstrates the amount of profit per 1 ruble. cost (full or production). It is calculated by the formula:

Rpr = Pr / Ss × 100,

where: Rпр - product profitability;

Pr - profit;

Сс - cost price.

As for the profitability of sales (it is also called the total profitability), it carries information about the amount of profit per 1 ruble. revenue. It is calculated by the formula:

ROS = Pr / Op × 100%,

where: ROS - return on sales;

Pr - profit;

Op - sales volume or revenue.

As you can see, the indicators do differ both in meaning and calculation. And they should not be confused.

The formula for the profitability of products on the balance sheet does not require data from Form No. 1 (balance sheet). All the necessary information can be gleaned from Form No. 2 (statement of financial results).

The profitability of products on balance is calculated for the corresponding period of time, and the unit of measurement of the profitability indicator is percent.

Consider the general formula for the profitability of products on the balance sheet for calculating the efficiency of product sales:

Rpr = (Pr / Exp) * 100%,

where Рпр is an indicator of profitability,

Pr - the amount of profit,

В - sales proceeds.

In addition to the revenue indicator, the formula for the profitability of products on the balance sheet can be calculated in accordance with the cost price:

Rpr = (Pr / Seb) * 100%,

where Ррп - profitability of sold products,

Pr - the sum of the profit of the enterprise,

Seb - the cost of production.

Types of product profitability

The formula for the profitability of products on the balance sheet determines the coefficient reflecting the part of the profit that relates to each ruble earned of the goods sold. The value determined by this formula may be different for enterprises of different industries, with a different assortment and competitive strategy.

There are several types of product profitability, among which the most often calculated:

Profitability in accordance with gross profit shows the percentage of gross profit, which is in each ruble of goods sold;
Operating profitability shows the share of profit attributable to each ruble that is received from the proceeds after all tax payments and interest have been paid;
Net profitability of sales reflects the share of net profit attributable to each ruble earned.

The formula for the profitability of products in terms of balance makes it possible to improve the pricing policy of any enterprise, as well as to find ways to effectively reduce its costs, which are related to commercial activities.

Formula of product profitability by balance (by profit)

When selling products, calculating profitability, economists use various types of profit. There are several variants of the formula for the profitability of products in terms of balance.

Consider the most common formulas for product profitability:

Profitability in accordance with gross profit is calculated by the ratio of gross profit to revenue (in percent):

P (by VP) = (Pval / Vyr) * 100%

Operating profitability is determined by the ratio of profit (before the payment of all tax payments) to revenue (as a percentage):

P (by OP) = (Pop / Exp) * 100%

Profitability in accordance with net profit is calculated by the ratio of net profit to revenue:

R (by PP) = (PC / Vyr) * 100%

Value of product profitability

The profitability of the products sold by the enterprise is most often called the rate of profitability, since it reflects the share of profit in the amount of revenue.

The formula for profitability of products in terms of balance characterizes the state of decrease in profitability of sales and a simultaneous decrease in the competitiveness of the product, and a drop in demand for it. The management of the enterprise, with a decrease in profitability, should take measures that will stimulate demand, increase the quality of products sold.

If there is a tendency to change the profitability of products over a period of time, then economists distinguish the base and reporting period. The basic indicators can be considered indicators of previous years (one year). These indicators are required to compare the profitability indicator for the reporting period with the coefficient that is taken as the basis.

Not only its management is interested in the efficiency of the enterprise, but also investors (both real and potential) and employees (the more efficiently the organization works, the greater the increase in wages the employer can provide). Financial analytics, which can give an objective picture of the current state of affairs, and make a forecast for subsequent periods, will help to correctly assess the efficiency of the enterprise. The most important place in this process is given to the analysis of various profitability indicators, among which the product profitability formula is considered one of the fundamental.

Product profitability is a coefficient that shows the ratio of profit to the cost of production and sale (in other words, the cost price) of the product. In other words, such a profitability ratio informs about how much profit one ruble invested in the production process will bring to the enterprise. The indicator can be calculated both for the company as a whole, and for individual areas, and even for types of products.

How to calculate product profitability

In general, the formula for calculating the profitability of products sold can be presented in the following form:

Rpr = Pr / Ss * 100%,

where Rпр - coefficient of profitability of products;
Pr - the value of profit from the sale of products;
Сс - production cost.

The numerator and denominator contain data for a certain time period (several months or years), which allows for dynamic analysis.

At full cost of production.
According to the production cost of products.
By sales profit.
By net profit.

Balance calculation formula

Like any other profitability ratio, this indicator can be calculated based on the balance sheet data. The figures from Form 1 are not used in this case, all the necessary information is contained exclusively in Form 2 (statement of financial results).

Depending on the type of the analyzed parameter, the formulas for the calculation may differ slightly:

The formula for calculating Rpr based on net profit and total cost:
Rpr = Value of line 2400 from form 2 / The total value of lines 2120, 2210 and 2220 from form 2 * 100%.
The formula for calculating Rpr for profit from sales and total cost:
Rpr = Value of line 2200 from form 2 / The total value of lines 2120, 2210 and 2220 from form 2 * 100%.
The formula for calculating Rpr for net profit and production cost:
Rpr = Value of line 2400 from form 2 / Value of line 2120 from form 2 * 100%.
The formula for calculating Rpr for profit from sales and production costs:
Rpr = Value of line 2200 from form 2 / Value of line 2120 from form 2 * 100%.

In our country, the value of the indicator at the level of 12% is considered normal.

It is worth mentioning that this figure can vary in a fairly wide range, depending on the industry to which the company is oriented. For the most honest assessment of efficiency, the ratio values should be compared with the industry average.

Poor profitability is a reason for inspections

The profitability of products can become one of the criteria on the basis of which the schedule of inspections is determined in the tax authorities. Moreover, the Federal Tax Service may be suspicious of either a too low value of the indicator, or too high. A critical deviation from the industry average is considered to be 10 percent or more.

What can the profitability of the company's products depend on?

The value of the coefficient calculated for the organization as a whole is directly dependent on several factors:

Any changes in the structure of products sold. If the share of more profitable types of goods in the total amount of goods sold increases - the profitability ratio of products - increases, otherwise it decreases.
Change in the average value of selling prices. Has a direct impact on the value of the coefficient.
Change in the level of the cost of goods. It is inversely related to the level of profitability of products. The cost price increases - the value of the indicator decreases, and vice versa.

The rise in prices (even if the cost price increases) is quite possible to control, but only if the company is a monopolist in its field, and the closest competitors have relatively low business activity and practically do not affect the company's demand indicators.

Calculation of indicators

Example 1

The company produces toothpaste. Over the past month, the total sales proceeds amounted to 5,000,000 rubles. Production costs for the same period amounted to RUB 3,300,000. The task is to assess the profitability of the product.

First of all, you need to find the total profit for the billing period. Pr = 6,000,000 - 3,000,000 = 2,700,000 rubles. Based on this value, you can calculate the profitability ratio:

Rpr = Pr / Ss * 100% = 2,700,000 / 3,300,000 * 100% = 81.8%

The resulting figure shows that each ruble invested by the enterprise in the production of this product brings 81.8 kopecks in net profit, which is a fairly good result.

Having made a comparative analysis with previous time periods, we can draw some conclusions about the competitiveness of the product in the market. So, in the case of a decrease in the indicator, we can talk about a drop in consumer demand, or about insufficient production efficiency.

Example 2

The same enterprise in the context of the release of several goods. For example, this will be toothpaste, soap, and shampoo. For each of them, the values of revenue and production cost are known. The task is to assess the profitability of each product and conduct a comparative analysis of the three types of products.

The profitability of certain types of products can be defined as the ratio:

Rpr1 = Pr1 / Ss1 * 100% = (47 - 38) / 38 * 100% = 23.6%
Rpr2 = Pr2 / Ss2 * 100% = (39 - 31) / 31 * 100% = 25.8%
Rpr3 = Pr3 / Ss3 * 100% = (61 - 66) / 66 * 100% = -7.5%

The negative profitability of the third product is immediately apparent. For each ruble invested in its production, there will be 1 ruble of 7.5 kopecks in losses. It is worth thinking about stopping its production, or about reducing the cost of production (preferably not at the expense of quality).

The first product brings more profit to the enterprise, but its profitability is slightly lower than that of the second. A competent financial analyst will recommend that the firm's management focus on increasing the volume of the second product.

How metrics are analyzed

A specialist who is well versed in economics should know not only how to calculate the profitability of a product and what ratio can determine its value. A competent analyst will be able to extract a lot of useful information from the calculated values of indicators. There are several ways to keep the coefficient level at the required level, or to increase its value.

The profitability indicator demonstrates the efficiency of the whole enterprise and its individual structural units. The main feature of profitability is that it is a relative characteristic of the company's activities (that is, expressed as a percentage), as opposed to the values of revenue, profit, etc.

Due to this, it allows you to qualitatively compare the result of the work of two or more business entities.

Dear reader! Our articles talk about typical ways of solving legal issues, but each case is unique.

If you want to know how to solve exactly your problem - contact the online consultant form on the right or call by phone.

It's fast and free!

Profitability indicators are indispensable for conducting financial analysis of a company, identifying negative aspects, issues, as well as taking measures to eliminate them and improve the company's performance.

Profitability Is an indicator that characterizes the result of using financial and other resources. That is, in fact, profitability shows exactly what share of the profit the company has received through the use of a particular resource, equating it to the total cost of the resource. Naturally, the higher the profitability indicator, the greater the profit, and, consequently, the more efficient the work. It can be expressed in the form of a ratio or percentage.

Calculation formula

To calculate the profitability of products, economic theory has several formulas. They differ in a variety of indicators.

Among them:

Profit from the sale of goods or services (Ex). It is defined as the difference between the proceeds from the products and services sold, and the costs of manufacturing and selling (cost price).
Net profit (NP). It is indicated in the statement of financial results. In addition, it can be calculated using the formula NP = Pr - additional expenses + additional income - tax contributions. Other income and expenses include financial resources that were not directly related to the manufacture and sale of goods.
Total cost (TS)- an indicator that includes the costs of manufacturing goods, as well as commercial costs associated with the process of effective implementation.
Production cost (TStehn) combines the resources spent on production, as well as the resources spent on running the company.

These four absolute characteristics form 4 options for calculating profitability:

According to the proceeds received by the organization from the sale of products and the total cost: ROM = Profit from sale (PR) / Total cost price (TS) * 100%
According to the proceeds received by the organization from the sale of products and technological costs: ROM = Revenue from product sales (Pr) / Production cost (TStechn) * 100%
In terms of free profit from products and total cost: ROM = Net income of the company (NP) / Total cost of goods (TS) * 100%
In terms of free profit from products and production (technological) cost: ROM = Net income of the company (NP) / Production cost (TStehn) * 100%

The profitability of goods can be determined using any of the above formula. At the same time, you can use both the entire production series, and any separate product segment.

Profitability indicators

In order to comprehensively assess the work of the company, a number of various profitability indicators are used:

Name	Designation	Characteristic	Formula for calculation
Return on assets	ROA	Demonstrates the effectiveness of the use of assets (equipment, raw materials, free cash resources, etc.).	Income / Asset Value * 100%
Profitability of fixed assets	ROFA	Shows the effect achieved from the use of fixed assets (production equipment).	Income / Cost of fixed assets * 100%
Profitability of current assets	RCA	Shows the result of using transferable assets (financial resources, raw materials, goods, accounts receivable, etc.).	Income / Value of working capital * 100%
Return on equity	ROE	It characterizes the efficiency of using the company's own financial resources.	Income / capital * 100%
Return on investment	ROI	Shows the efficiency of the implemented investments, that is, what kind of profit they brought.	Income / Investment amount * 100%
Profitability of products sold	ROM	Reflects the result of the sale of goods and services of the company. In fact, the indicator demonstrates the ratio between the resources received from the sale and the resources spent on the manufacture and sale of products.	Income / Cost * 100%
Return on sales	ROS	It characterizes how many kopecks of profit are in each proceeds from the sale of y. e.	Income / Sales proceeds * 100%
Staff profitability	ROL	Reflects the result of the work of a unit of personnel.	Income / number of staff * 100%
Production profitability	–	Shows the efficiency of using the company's property.	Income / Costs for fixed and circulating assets * 100%

With the help of profitability indicators, it is possible to determine the effect of financial leverage, that is, the required ratio of own and borrowed financial resources. For this, the difference between and capital is calculated.

All these indicators are necessary to conduct a deep financial analysis of the enterprise and form management decisions on its basis, as well as to analyze the work of other companies (for example, competitors or potential partners).

Analysis of indicators

Analysis of the indicators of profitability of products is necessary for an effective and high-quality assessment of the results of the work of a business entity. In the process of his providence, the owner will be able to determine how many kopecks of profit are provided by one conventional unit of value invested in the production and sale of goods.

Profitability metrics, calculated using production costs, demonstrate the effectiveness of manufacturing costs. Typically, these types of profitability are given a higher value than those calculated using full cost formulas.

In order to fully assess the company's performance, both types of indicators should be calculated. The higher the profitability, the more efficiently and correctly the production and sale of products is carried out. High profitability indicates a good competitiveness of products on the market.

In order to achieve a more meaningful profitability, you should:

Reduce the volume of the cost of goods. This can be done through more efficient use of fixed assets, increased mechanization of manufacturing processes, the use of cheaper raw materials from new suppliers, etc.
Increase production turnover rates(that is, increasing the volume of sales and production). This can be achieved through a more in-depth study of sales markets, searching for new sales markets, expanding the range, etc.

Both methods of increasing profitability require certain costs, however, in the future they are able to bring much more profit than the company received before.