Return on sales volume is a standard value. The correct formula for profitability of sales on the balance sheet with examples. Net return on sales

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There are several options for determining return on sales (ROS, Return on Sales) - one of the most important indicators for economic analysis of activities. And in this article we will talk about various formulas for calculating profitability of sales.

From this article you will learn:

1. EBIT formula
2. Formula for balance
3. Gross profit formula
4. What does the result obtained using the formula in percentage indicate?
5. What if the formula for profitability of product sales showed a drop

Classic formula for calculating return on sales

Most often, to determine the profitability and efficiency ratio, we turn to the formula for return on sales based on net profit, considering it as the ratio of the company’s net profit (NP) to sales revenue (TR) for the same period:

NPM=PP/TR.

Indicators for the numerator and denominator are also calculated using separate formulas. Revenue is defined as the product of price (P, or Price) and sales volume, the number of units sold (Q, Quantity):

It is important to note that in order to include the result in the return on sales formula, indirect taxes paid in the analyzed period will need to be subtracted from TR.

By calculating revenue, you can highlight the net profit of the enterprise. To do this, all kinds of taxes (N), expenses (Pr), the cost of goods (TC, or Total Cost) are subtracted from the revenue and other income (PrD) is added:

PE=TR-TC-PrR+PrD-N.

The company receives other expenses and income as a result of side activities, for example, trading in shares and securities, differences from currency exchange, participation in the work of other organizations and the benefits received from this.

To determine the level of profitability of sales The formula may include the following indicators instead of net profit:

• earnings before interest and taxes (EBIT);
• operating profit from core activities;
• marginal profitability of the enterprise (or Gross Margin - gross margin).

The choice between these values ​​is determined by the tax burden, available sales information and calculation purposes.

For example, the analysis can be aimed at studying the effectiveness of different types of core activities in the field of production and sales or at studying individual products and their groups. In this case, it is recommended to determine the profitability of sales using a formula with gross margin, since calculating net profit will require the distribution of costs for each type of product, and this is a rather labor-intensive task with uncertain utility.

Distribution of income tax is also not a simple job, so for in-depth economic analysis in the NPM formula, instead of PE, you can use those parameters that will be easier to determine. Justified labor costs in this case will be the best solution.

EBIT return on sales formula

Operating profitability, EBIT, return on sales and revenue (TR, or Total Revenue) can be used to determine operating profitability. It is important not to confuse the concepts of operating and earnings before interest and taxes (Earnings Before Interest and Taxes).

ROS=EBIT/TR – This is a formula for return on sales using the EBIT variable, which is determined in accordance with Russian accounting standards as follows:

EBIT = line 2300 “Profit (loss) before tax” + line 2330 “Interest payable”.

Profit before taxes and interest actually occupies an intermediate position between net and gross profit.

Formula for return on sales on balance sheet

Calculation of the efficiency and profitability of sales can also be done using the company’s balance sheet indicators. In this case, profitability is obtained as a ratio, where the numerator is an indicator of unprofitability or sales profitability (for example, in the company’s balance sheet in form No. 1), and the denominator is revenue (for example, taken in form No. 2 or information on financial performance). So we get a list of interchangeable formulas:

RP = profit (loss) from sales / revenue (net) from sales,

RP = line 050 / line 010 f. No. 2,

RP = line 2200 / line 2110.

Formula for return on sales based on gross profit

Gross profitability of sales (or in English terminology - Gross Profit Margin, GPM) is calculated as a ratio, where the numerator is the value of gross profit (GP), and the denominator is revenue (TR):

GPM=VP/TR.

The VP value is usually calculated for reporting purposes, so it is either taken from documents or determined independently. Gross profit in trade is what remains from the revenue when the Total Cost of the product is subtracted from it:

VP=TR-TC.

Revenue is equal to the product of price and the number of units sold ( TR=P*Q). Thus, gross profit can be calculated using the following formula:

VP=P*Q-TC.

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What does the result obtained using the formula for return on sales as a percentage indicate?

As mentioned at the beginning of the article, ROS is a measure of how much profit a company makes from each individual monetary unit of revenue. In other words, profitability tells us about the effectiveness of sales, about how much money the company actually earns from each ruble received from the client.

To assess how high profitability is, it would be logical to rely on standard market indicators. However, it is not possible to determine them. So top management is faced with the task of analyzing their industry and competitors to derive their own standards and acceptable fluctuations in results, calculated using the return on sales formula.

If you analyze the return on sales for the company as a whole

In comparison with competing enterprises, an obvious rule clearly works: the lower the profitability ratio (that is, the lower the percentage of profit in each ruble earned), the weaker your company performs compared to others. After all, this means that revenue mainly covers expenses and does not generate income.

Poor profitability indicators may indicate an unsuccessful pricing policy or an erroneous market strategy (for example, when a company attracts attention by dumping). If the return on sales ratio according to the formula on the balance sheet when summing up the results is too small or falls each time, then it is worth thinking about the marginality of products or reducing costs for them.

If you are analyzing return on sales for pricing purposes

Calculating return on sales using a formula based on the balance sheet or other indicators is available not only for analyzing the company at the top level, but also for studying the effectiveness of individual areas and making reasonable decisions.

For example, an analysis of product profitability can suggest the direction of pricing policy. It is also worth noting how the ROS variable is interconnected with the scaling of sales: with an increase in the number of goods sold, overhead costs are redistributed to everything and do not themselves grow significantly. This means that the percentage of expenses decreases, and revenue increases, as a result of which the profitability ratio increases.

If you are analyzing profitability of sales for assortment policy purposes

When they calculate the net return on sales formula for the enterprise as a whole, they can judge the overall picture based on the data obtained, but they are unlikely to have all the necessary information to make adequate decisions.

In order for subsequent actions to improve the situation, research into individual product lines, groups and products is required. Their coefficients will allow you to rank products and find the weakest points.

But do not forget that each type of product has its own strategic role. So, for example, a low ROS for a company may arise due to a product or service that, according to the BCG matrix, is a “money bag” (or “cash cow”). These are products with stable high demand, providing the company with a significant portion of its revenue. So refusing such a product would be a serious mistake.

Return on sales formula in action (example)

Let’s say the company “Wings and Pilots” received 30 million rubles in net profit in 2016, and in 2017 – only 23 million rubles. At the same time, revenue was equal to 150 million rubles in 2016 and 140 million rubles in 2017. Let’s calculate the return on sales using the formula using an example:

In 2017, Return on Sales decreased by 3.6%, while profits decreased by 23.3% and revenue, not so significantly, by 6.7%. This ratio of changes indicates that costs have increased at the enterprise. With such a deterioration in the ratio, it is recommended to study more deeply the profitability of individual products:

These calculations using the return on sales formula and determining changes in the subsequent period showed an interesting case: product X has a decrease in ROS, which happens because revenue remains the same and profit decreases. Such situations arise when the product has developed to “maturity”. That is, promotion eats up more and more expenses.

At the same time, product Y showed a decline in all parameters except profitability. ROS increases because revenue has fallen more than profit. In fact, it is possible that Y's sales began to fall, but Wings and Pilots effectively optimized costs. This happens with new products.

Product X generates the majority of revenue, but this leads to a paradoxical situation in which a 2.9% drop in X's profitability and a 1.4% increase in Y's ROS provide an overall decrease in the result obtained from the return on sales formula.

In-depth analysis can be carried out not only for product lines or individual products, but also for network branches, touch points, and sales managers. Such research provides data for strategic decisions.

If the formula for profitability of product sales showed a drop

Business is aimed at obtaining maximum profits, which means that the company's strategy is based on this intention. However, any strategic decision aimed at increasing profitability faces several limitations: the limited number of resources in the company in general and in particular. Market size is also a limit, because it is extremely difficult to sell more than the market is willing to accept.

If the strategy aims to increase the ROS ratio, then in fact we are talking about either cutting costs, or increasing profits, or, in the best case scenario, about the simultaneity of these factors. And this gives real results even with a revenue ceiling that is determined by the market.

At the same time, a decrease in the indicator obtained using the return on sales formula can also be determined by the strategy, for example:

• increase in depreciation payments due to recent capital investments of the enterprise. Increased spending reduces the Return on Sales ratio;
• maintaining the previous level of sales of a “mature” product (as in the example above) by injecting funds into its promotion. Thus, the share of costs in revenue increases, and profitability decreases;
• strategy for market capture by a dumping company. Obviously, profits decrease during dumping, but the enterprise achieves its goal.

More detailed factor analysis of profitability of sales using formulas

To detect the reasons for the decrease in ROS in comparison with another reporting period or with the planned value, it is recommended to conduct factor analysis.

Formula 1. Calculation of profitability of sales

For further analysis, the return on sales formula must be detailed by breaking down the profit into indicators by which it can be calculated.

Formula 2. Detailed calculation of profitability of sales

Notations used	Units	Decoding	Data source
		Profitability ratio	Computations
			Statement of financial results (page 2110) or income and expenses
		Management costs	Statement of financial results (page 2220) or income and expenses
		Business expenses	Statement of financial results (page 2210) or income and expenses
		Cost price	Statement of financial results (page 2120) or income and expenses

Revenue, cost and expenses can influence ROS, or RP, in a variety of ways. The change in Return on Sales, taking into account these factors, can be determined using the following formula for return on sales:

Formula 3. Calculation of changes in profitability of sales under the combined influence of factors

Notations used	Units	Decoding	Data source
		Change in profitability ratio	Computations
			Formula 4
		Change in profitability of sales due to cost	Formula 5
		Change in profitability of sales due to selling costs	Formula 6
		Change in return on sales of management costs	Formula 7

Let us sequentially consider all the formulas indicated in the previous table as data sources:

Formula 4. Calculation of changes in profitability of sales due to changes in revenue

Notations used	Units	Decoding	Data source
		Change in return on sales due to revenue	Computations
		Revenue in the analyzed period
		Revenue in the base period	Statement of financial results (income and expenses) for the base period
			Statement of financial results (income and expenses) for the base period
		Business expenses in the base period	Statement of financial results (income and expenses) for the base period

If the return on sales formula and the change in the resulting coefficient showed a difference between reporting periods of more than 1%, it is recommended to do a detailed factor analysis of revenue.

Formula 5. Calculation of changes in profitability of sales due to cost

Notations used	Units	Decoding	Data source
		Change in profitability of sales under the influence of cost	Computations
			Statement of financial results (income and expenses) for the analyzed period
		Cost in the base period	Statement of financial results (income and expenses) for the base period
		Management costs in the base period	Statement of financial results (income and expenses) for the base period
			Statement of financial results (income and expenses) for the base period
		Revenue in the reporting period	Statement of financial results (income and expenses) for the analyzed period

If, due to changes in the cost of production, the RP has fallen or increased by more than 1%, then this factor requires separate study. It is important to analyze the reasons for changes in cost, since the parameters that determine it (output volume, structure, level of variable costs, etc.) have an indirect impact on the profitability of sales.

Formula 6. Calculation of changes in profitability of sales due to business expenses

Notations used	Units	Decoding	Data source
		Change in sales profitability under the influence of commercial costs	Computations
		Revenue in the reporting period	Statement of financial results (income and expenses) for the analyzed period
		Administrative expenses in the base period	Statement of financial results (income and expenses) for the base period
		Cost in the reporting period	Statement of financial results (income and expenses) for the analyzed period
		Selling expenses in the base period	Statement of financial results (income and expenses) for the base period
			Statement of financial results (income and expenses) for the analyzed period

The formula for changing sales profitability under the influence of management costs has the following variable parameters:

Formula 7. Calculation of changes in profitability of sales due to management expenses

Notations used	Units	Decoding	Data source
		Changes in profitability of sales under the influence of management costs	Computations
		Administrative expenses in the reporting period	Statement of financial results (income and expenses) for the base period
		Administrative expenses in the base period	Statement of financial results (income and expenses) for the base period
		Revenue in the reporting period	Statement of financial results (income and expenses) for the analyzed period
		Cost in the same period	Statement of financial results (income and expenses) for the analyzed period
		Selling expenses in the reporting period	Statement of financial results (income and expenses) for the analyzed period

If the results of factor analysis indicate serious reasons for the decrease in profitability of sales in your online business, then it is better not to wait for things to worsen, but to turn to specialists.

Financial analysis uses various tools to assess the sustainability of an enterprise’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 of the costs of financial resources or property.

You can calculate profitability:

• Sales;
• Assets;
• Production;
• Capital.

The most striking indicator of a company's financial condition is return on sales.

The indicator value is used for:

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

Return on Sales - Definition

Return on sales – This is a financial instrument that allows you to estimate how much profit is included in each ruble that the company receives as a percentage of gross revenue.

Profitability clearly demonstrates the share of profit in product revenue.

The calculation of profitability is distinguished:

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

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

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

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

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

How to calculate gross and operating profitability?

RPVP =VP / TV, Where

VP— gross profit from sales of goods;

TV— revenue from sales of goods.

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

OR = EBIT / TV, Where

EBIT- profit before taxes or interest have been subtracted from it.

EBIT- this is an indicator between the net profit of the enterprise and all profit.

EBIT = PE - PR - NP, Where

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 for net profit– is the share of net profit from the gross revenue of the enterprise.

This is one of the most visual indicators of the efficiency of an enterprise, as it shows how many kopecks of net profit are contained in one ruble of company sales.

RP pure = PE/TV, Where

• 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 statements, namely in Form 2 “Report on 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– quantity of products sold in units;
• C– unit price.

PP = TV – S/S – N – R others + D others, Where

• S/S– total cost of production;
• N– taxes;
• R other- other expenses;
• D other- 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 equity participation.

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

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

Return on sales - meaning

Return on sales– this is a kind of litmus test for determining the effectiveness of an enterprise’s pricing policy. Can be used to control company costs.

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

The return on 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 KRP has grown.

This situation indicates:

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

Prerequisites:

• Increase in volumes of commodity revenue, which is most likely associated with an increase in the volume of sales of goods or 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 prices for goods to increase the gross revenue of the enterprise. At the same time, the cost of production can be significantly reduced, which will also lead to an increase in product revenue.
• Reducing costs occurs faster, generating cash for the enterprise's activities.

Causes:

• Increased cost of production(goods or services);
• Range of products sold has changed significantly.

For any of the above reasons, the profitability of sales formally increases. The share of profit will become larger, but in physical terms it will remain unchanged or decrease.

Cause- This is a decrease in product revenue. This increase in the indicator is not clearly positive. It is necessary to track the situation over time. And also analyze the product range and pricing mechanism.

• The money supply from ongoing activities grows, and the company’s expenses fall.

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 company's position.

1. The CRP has decreased.

This situation means that:

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

Prerequisites:

• Increased expenses against the backdrop of inflation;
• Changing the company's pricing policy towards maximum reduction in the cost of products (goods, services);
• Changes in demand for goods;
• A decrease in the indicator is extremely unfavorable regardless of which reason had the greatest impact.
• The decrease in the growth of money supply from the sale of products occurs faster than reducing the company's expenses.

Prerequisites:

• Demand for products enterprises fell significantly.
• The situation is quite standard. Almost every enterprise has seasonal activity. However, it is necessary to analyze what is causing the drop in sales.
• Expenses increased amid decrease commodity revenue.

Prerequisites:

• Reduced product costs(goods or services);
• Changes 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.

It is important to differentiate the profitability indicator from revenue. If revenue simply reflects the company’s total turnover (it is calculated in rubles), then profitability is the efficiency of its activities (expressed in %). Any business that has brought profit at the end of the period under review can be called profitable. If a loss is made, the profitability will be negative.

In trading activities, the profitability of a product is calculated as the ratio of net profit to cost.

Profitability of goods (services) = net profit from sales (provision of services) / cost * 100%.
Return on sales (services) = net profit/revenue*100%.

Let's say a company sells women's clothing. She purchased goods worth 12 million rubles and sold them for 28 million rubles. At the same time, administrative and commercial expenses amounted to 5 million rubles. Thus, the profit amounted to 11 million rubles, and the profitability of goods was 11/12*100=91%.
The profitability of services is calculated in a similar way; in this case, the cost does not take into account the purchase price of the goods, but, for example, the costs of purchasing tools, paying workers, etc.

The assessment takes into account the company's net profit and turnover. If we take c as a basis, then it will be equal to = 11/28*100%= 39.2%. Using this formula, it is advisable to evaluate each product group separately. For example, the profitability of sales of T-shirts, bags, etc. This will allow you to highlight the most effective items in the assortment, as well as those that need to be worked on to increase their profitability.

Acceptable level of profitability by industry

There is no single acceptable level of profitability; it varies depending on the industry. So, for example, in the mining industry, the return on sales is considered normal above 50%, but in the woodworking industry it does not reach 1%.
According to researchers, the average Russian profitability rate is about 12%. However, this value in itself is practically meaningless unless it is compared with similar performance indicators of competitors or industry averages.

Please note that if the profitability of your business deviates significantly from the industry average (by 10%), this increases the likelihood of a tax audit.

According to RIA rating, average sales by industry in 2013 were as follows:
- mining - 26.3%;
- chemical production - 18.3%;
- textile production - 2.8%;
- agriculture - 11.7%;
- construction - 6.7%;
- wholesale and retail trade - 8.2%;
- financial activity - 0.4% (2012, Rosstat);
- healthcare - 6.5% (2012, Rosstat).
In the service sector, a profitability of 15-20% is considered acceptable.

If you have come to the conclusion that you are seriously behind your competitors in terms of business efficiency, you need to work on improving your profitability. This goal can be achieved through a competent marketing policy aimed at increasing the customer base and ensuring an increase in the turnover of goods, as well as by obtaining more favorable offers from suppliers of goods (or subcontractors).

One of the economic indicators of the efficiency of organizing the activities of an enterprise is return on sales (hereinafter referred to as RP).

It allows you to determine how profitable the entire process from manufacturing to sales of manufactured products is for the company. This value depends on the indication of gross profit (hereinafter referred to as GP), revenue and other factors.

The concept of profitability and its main types

The RP indicator is very widely used in all sectors of the economy in order to find out how effectively the enterprise uses current costs.

This indicator is measured as a percentage, showing the ratio of profits to expenses. This coefficient shows what share it takes in each ruble earned after the sale of manufactured products.

Exists several types of RP depending on the parameters used when determining it:

1. by value before interest and taxes in each ruble of revenue;
2. according to VP indications (Operating Margin, Gross Margin, Sales margin,);
3. by net profit, part of which falls on 1 ruble of revenue (Profit Margin, Net Profit Margin).

Obtaining net profit is possible only if the company carries out expedient activities aimed at rational use of investments. The coefficient also depends on capital turnover and output volume.

What characterizes this meaning?

The RP parameter is an indicator of economic efficiency that characterizes the company's profitability from production activities.

By its meaning carry out analysis about how rationally the organization uses its available production resources:

If the results of the activities of non-profit structures are analyzed, then this parameter will assess the overall effectiveness of their work. For commercial departments, accurate quantitative characteristics are important when making calculations. RP is similar to efficiency, only the parameters in this analysis are the result obtained as a result of the activity, which is presented as the ratio of costs incurred to the amount of profit received. The more benefits received, the more profitable the production.

At enterprises, RP is an indicator of the organization’s pricing policy and competent cost control. Diversity in the competitive strategies of an enterprise is stimulated by the large difference in the parameters of the RP in different companies. It is widely used to analyze the operational efficiency of organizations.

For information about what this indicator is, the rules and examples of its calculation, see the following lesson:

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Calculation procedure and rules

The RP indicator is calculated in order to to carry out analysis such factors:

• dynamics of company development;
• efficiency of production processes;
• methods of product sales.

The RP value is usually calculated as the ratio of net profit, from which taxes have already been withheld, to the volume of proceeds received from sales for the same period of time.

By gross profit

The RP coefficient calculated using the VP parameter is called in English: GrossProfitMargin.

It is obtained by solving a simple formula - the ratio of VP to revenue:

RPval=VP/V,
where B is revenue.

This parameter shows the size of the VP’s share in kopecks contained in 1 ruble of proceeds.

By operating profit

The numerical value found as a result of the ratio of operating profit to the amount received after the sale of products is the RP for operating profit or also called Return on Sales (ROS).

The formula for determining this parameter is as follows:

where Ebit is operating profit. This value is obtained as the sum of two lines: 2300 “Profit (loss) before tax” and 2330 “Interest payable”;
Tr – proceeds after sales.

In English, operating profit sounds like Earnings before Interests and Taxes.

In this parameter, as in the previous case, you can immediately see the penny share of operating profit included in 1 ruble.

This parameter is an intermediate performance assessment coefficient between sales profit and net profit.

By net profit

The designation Net Profit Margin (Npm) belongs to the term net profit margin. It is determined as a result of the ratio of net profit to total revenue. In this case, they talk about RP, which shows what share of net profit falls on 1 ruble of revenue.

The formula looks like this:

Npm=Pr./Tr,

in which net profit (Tr) is determined by multiplying the price by the number of items sold from the output:

Tr=W*L,
W – price, L – number of units sold.

Net profit =Tr - Total cost - Expenses + Income - Taxes,

where are the indicators “Expenses” and “Incomes” arising from the non-core activities of the enterprise. These include exchange rate differences in currencies, transactions with securities, in the production of other enterprises through, etc.

Balance formula

Another option for calculating the RP indicator is a formula that uses balance sheet data:

RP = profit from sales / amount of revenue

RP = line 050 / line 010 f. No. 2,

where profit from sales is the value from line 050 in form No. 1 of the enterprise; the amount of revenue is reflected in line 010 in form No. 2.

Each of the above calculation options is used in one case or another to analyze the company’s sales activities.

Return on sales ratio

The share of net profit in total sales is determined using return on sales ratio(hereinafter KRP).

It is the most important among other indicators of a company's profitability. The indicator cannot have a negative value and correspond to the current inflation rate. In order for it to show a smaller error in countries with highly developed economies, the coefficient is correlated depending on the industry.

The formula for calculating the coefficient is as follows:

KPR = net profit/sales revenue.

This parameter can be calculated either for individual items (for example, for a specific product) or as a whole for total products. Calculations must be done quite often, because... This is important for organizing rational production at the enterprise, which allows you to stably maintain and increase the flow of profits.

Calculation example

To calculate the RP parameter required for analysis and find out how much net profit the company received from the sale of goods, you need to apply the formula. To make it easier to understand how to calculate RP, let's look at an example.

The company received total sales revenue for the year 2014 amounted to 15.85 million rubles, and in 2015 it increased to 17.51 ​​ml. rub.

The net profit amounted to:

• in 2014 – 3.8 million rubles;
• in 2015 – 4.9 million rubles.

Do you need to determine how the RP has changed?

To answer, you must first find out the KRP for 2014 and 2015. To do this, let’s substitute the initial data into the formula for calculating the CRP given above:

KRP (2014) = 3.8/15.85 = 0.2397 or in terms of net profit RP (2014) = 23.97%.

KRP (2015) = 4.9/17.51 ​​= 0.2798, respectively, and RP (2015) = 27.98%.

Now we need to clarify how the value has changed as follows:

RP (2015) - RP (2014) = 27.98-23.97 = 4.01%.

From the calculations it follows that in 2015 the profitability of sales increased significantly by 4.01%.

Analysis of the results obtained

By analyzing the value of return on sales, the management administration tries to find out how correctly the use of costs is organized in order to make a profit.

In many enterprises this analysis needed for the following:

• stable revenue and increased profits;
• control over the development of the company;
• making comparisons with competing firms;
• detection of profitable and unprofitable products, etc.

The management of the organization must carefully consider measures to increase profits and reduce losses in production activities. What to do if you need to increase your RP? What to do if profitability decreases? Regular monitoring and analysis of the RP level allows you to identify a lot of extremely important information. During the calculations, it becomes clear how production is developing, what needs adjustment, and what factors, on the contrary, do not require changes.

For every business activity, there is no more important goal than to constantly increase your income. To do this, it is necessary to regularly calculate all options for determining profitability and record the results obtained.

The main source of movable capital is revenue received from the sale of products. Therefore, one of the main activities of the subject should be to increase the RP indicator by observing the economy regime, reducing costs, and rational use of enterprise resources.

Due to the fact that the volume of costs for raw materials requires considerable investments, and increasing profitability implies reducing costs, it is necessary to rationally calculate the costs of purchasing materials. This will increase the KRP and increase profits.

Marketing market research will make it possible to establish an improved production of products similar to similar products from competitors and increase customer demand for their products.

Main activities for the use of labor resources affecting to increase profitability, such:

• optimal use of workers employed in production;
• increasing the skills and qualifications of working personnel;
• optimization of costs for departments that are not involved in direct production of products;
• use of automated mechanisms in production;
• promoting staff interest in increasing productivity.

Main factors that may influence to reduce sales profitability, such:

• Expenses are growing faster than revenue from product sales;
• The decline in revenue outpaces the increase in costs;
• There is a decrease in revenue against the background of increasing costs.

The first option is usually associated with an increase in corporate costs with a forced reduction in prices due to the onset of unfavorable market conditions. The second point is characterized by a drop in product sales.

And in the latter case there is a series factors influencing the decrease in RP. These include:

• the need to reduce prices for manufactured products;
• reduction in assortment due to the inability to stop the increase in corporate costs.

It is necessary to analyze these factors and revise the economic policy of the enterprise in order to prevent and gradually increase the RP indicator.

Standard values ​​of this indicator for Russia

RP depends on many factors. The highest indicators are in the trade and mining industries, and the lowest in heavy engineering.

For this parameter influence:

• Industry;
• Region;
• Terrain;
• Kind of activity;
• Seasonality, etc.

According to statistics, in 2014 there were such profitability indicators:

• The maximum number belongs to the mining sector (24-33%) and chemical production (16.7%).
• Large business areas are showing a decrease in profitability due to falling prices and consumption on world markets.
• Enterprises in the small and medium segment of the economy showed a slight increase of about 0.9% of GDP.
  Due to the turbulent geopolitical situation, the profitability of some industries has decreased, but nevertheless growth is observed and economists predict that retail trade could grow by 2.1% per year.

The rules and procedure for calculating profitability are discussed in the following video:

Profitability- a relative indicator of economic efficiency. The profitability of an enterprise comprehensively reflects the degree of efficiency in the use of material, labor, monetary and other resources. The profitability ratio is calculated as the ratio of profit to the assets or flows that form it.

In a general sense, product profitability implies that the production and sale of a given product brings profit to the enterprise. Unprofitable production is production that does not make a profit. Negative profitability is an unprofitable activity. The level of profitability is determined using relative indicators - coefficients. Profitability indicators can be divided into two groups (two types): and return on assets.

Return on sales

Return on sales is a profitability ratio that shows the share of profit in each ruble earned. It is usually calculated as the ratio of net profit (profit after tax) for a certain period to the sales volume expressed in cash for the same period. Profitability formula:

Return on Sales = Net Profit / Revenue

Return on sales is an indicator of a company's pricing policy and its ability to control costs. Differences in competitive strategies and product lines cause significant variation in return on sales values ​​across companies. Often used to evaluate the operating efficiency of companies.

In addition to the above calculation (return on sales by gross profit; English: Gross Margin, Sales margin, Operating Margin), there are other variations in calculating the return on sales indicator, but to calculate all of them, only data on the profits (losses) of the organization are used (i.e. e. data from Form No. 2 “Profit and Loss Statement”, without affecting the Balance Sheet data). For example:

• return on sales (the amount of profit from sales before interest and taxes in each ruble of revenue).
• return on sales based on net profit (net profit per ruble of sales revenue (English: Profit Margin, Net Profit Margin).
• profit from sales per ruble invested in the production and sale of products (works, services).

Return on assets

Unlike indicators of return on sales, return on assets is calculated as the ratio of profit to the average value of the enterprise's assets. Those. the indicator from Form No. 2 “Income Statement” is divided by the average value of the indicator from Form No. 1 “Balance Sheet”. Return on assets, like return on equity, can be considered as one of the indicators of return on investment.

Return on assets (ROA) is a relative indicator of operational efficiency, the quotient of dividing the net profit received for the period by the total assets of the organization for the period. One of the financial ratios is included in the group of profitability ratios. Shows the ability of a company's assets to generate profit.

Return on assets is an indicator of the profitability and efficiency of a company's operations, cleared of the influence of the volume of borrowed funds. It is used to compare enterprises in the same industry and is calculated using the formula:

Where:
Ra—return on assets;
P—profit for the period;
A is the average value of assets for the period.

In addition, the following indicators of the efficiency of using certain types of assets (capital) have become widespread:

Return on equity (ROE) is a relative indicator of operational efficiency, the quotient of dividing the net profit received for the period by the organization’s equity capital. Shows the return on shareholder investment in a given enterprise.

The required level of profitability is achieved through organizational, technical and economic measures. Increasing profitability means getting greater financial results with lower costs. The profitability threshold is the point separating profitable production from unprofitable ones, the point at which the enterprise’s income covers its variable and semi-fixed costs.