Marginal profitability shows. Marginal profit. Why Calculate These Ratios

"Auditor", 2013, N 10

The article deals with the issues of marginal analysis in the system management accounting, indicators of marginal analysis, a new indicator of profitability of marginal profit, which is fundamental in planning the activities of an economic entity, has been introduced.

Importance in justification management decisions in business has marginal analysis. His methodology is based on the ratio of the three most important economic indicators (costs, sales volume (sales), profit) and forecasting the value of each of these indicators with a given value of others.

This method of management calculations is also called break-even or income assistance analysis. It was developed in 1930 by the American engineer Walter Rauthenstrach as a planning method known as the critical production schedule. It was first described in detail in Russian literature in 1971 by N.G. Chumachenko, and later - A.P. Zudilin.

The methodology of marginal analysis is based on the division of production and marketing costs (depending on the change in the volume of production of the enterprise) into variables (proportional) and constant (non-proportional) and the use of the marginal profit category.

Marginal profit (gross margin, coverage margin) is the difference between revenue and variable costs. It includes fixed costs and profits. The larger its value, the greater the likelihood of covering fixed costs and making a profit from production activities. Therefore, marginal profit is sometimes also called the coverage amount - i.e. this is the part of the revenue that remains to cover fixed costs and generate profits.

However, the report form with the derivation of marginal profit is not applicable for the purposes of accounting and tax accounting and external reporting, as fixed overheads are not considered an element in it production cost. In the traditional form of analysis, the concept of gross profit is embedded, which expresses the difference between sales revenue and full cost products sold(whereas marginal profit is the difference between revenue and variable costs). Therefore, gross profit serves to cover non-manufacturing costs, while marginal profit is used to cover fixed costs.

Marginal profit value for each specific type product, contract, type of activity is important for internal users. The calculation of marginal income allows you to determine the impact of sales volumes on the amount of profit from the sale of products, works, services and the volume of sales from which the company makes a profit. If this indicator is negative, then the proceeds from the sale of the product do not even cover variable costs.

Marginal analysis is widely used in developed countries. market economy because it allows:

• more accurately calculate the influence of factors on the change in the amount of profit and, on this basis, more effectively manage the process of formation and forecasting of its value;
• determine the critical level of sales volume, fixed costs, prices for a given value of the relevant factors;
• establish a security zone (break-even zone) of the enterprise;
• calculate the required volume of sales to obtain a given amount of profit;
• justify the most optimal variant of management decisions regarding changes in production capacity, product range, pricing policy, etc. in order to minimize costs and increase profits.

Margin analysis includes break-even analysis, which allows you to calculate the amount (number) of sales at which income equals expenses. The business does not incur losses, but it does not make profit either. Selling below the break-even point results in a loss; selling above the break-even point results in a profit. The break-even point is the line that a company needs to cross in order to survive. Therefore, many economists tend to call the break-even point the threshold of profitability. Therefore, the marginal approach to determining profit provides the data necessary for managerial planning and decision making.

The essence of marginal analysis is to analyze the ratio of sales, cost and profit based on predicting the level of these values ​​under given restrictions.

The meaning of marginal profit is as follows. The formation of direct costs is carried out directly for each type of product (goods), activity, segment. The formation of overhead costs is carried out within the framework of the entire enterprise - an economic entity. Therefore, the difference between the price of a product and its direct costs can be represented as a potential contribution of each type of product, type of activity to the total final result activities of the enterprise - an economic entity. Thus, marginal profit is the marginal profit that an enterprise can receive - an economic entity.

Marginal analysis serves to find the most profitable combinations between variable costs per unit of product, fixed costs, price and sales volume. Therefore, this analysis is impossible without the division of costs into fixed and variable.

The method of profit margin analysis allows you to more fully study the relationship between indicators and more accurately measure the influence of factors. You can demonstrate this with comparative analysis. According to the method of factor analysis of profit, the following model is usually used:

P \u003d V (C - C),

C - unit price of the product;

C is the unit cost of the product.

In this case, it is assumed that all the above factors change by themselves, independently of each other. This model does not take into account the relationship between production volumes (sales) of products and their cost. Usually, with an increase in production (sales), the unit cost of production decreases, because. only the sum of variable costs increases, while the sum of fixed costs remains unchanged. Conversely, with a decline in production, the cost of products increases due to the fact that more fixed costs per unit of production.

AT foreign countries to provide systems approach when studying the factors of changes in profit and forecasting its value, the following model is used:

P \u003d V (C - b) - Z,

where V is the volume of products sold in units;

C - unit price of the product;

b- variable costs per unit of production;

З - fixed costs for the entire volume of sales of this type of product.

This formula is used to analyze the profit from the sale certain types products. It allows you to determine the change in the amount of profit due to the number of products sold, prices, the level of specific variables and the amount of fixed costs. This technique allows you to more correctly calculate the influence of various factors on the change in the amount of profit, because. it takes into account the relationship of production (sales), cost and profit.

Marginal profit (MP) is calculated by the formula:

MP \u003d B - Zper,

where B - sales proceeds;

Zper - variable costs.

In practice, the set of criteria for classifying a particular cost item as a variable or fixed part depends on the specifics of the organization, the adopted internal regulations, the goals of the analysis, and the professional level of the specialist.

When analyzing, a deeper detailing of variable costs is often carried out into groups of variable production, general production, general business and other expenses. This implies the need to calculate several indicators of marginal income, on the basis of the analysis of which a decision is made about the impact on which groups of expenses can most noticeably affect the value of the final financial result.

Complementary to marginal profit is the indicator of marginal profitability (MR), calculated as

The indicator of marginal profitability shows how much income the company receives for the invested ruble of direct costs, and is very important for comparative analysis. various kinds products (goods).

The total amount of marginal profit for all types of products produced is the marginal profit of the enterprise.

Marginal profit is a source of covering overhead (operating) expenses of the enterprise and operating profit.

Operating profit (OP) - the profit of an economic entity from the main (ordinary) activity, equal to the difference between revenue and expenses for ordinary activities (the latter include direct and operating expenses - OR) or, which is the same, between marginal profit and operating expenses. Operating profit is actually equivalent to sales profit. Then the profit that the company can expect is defined as

OP = MP - OR.

Thus, profit growth is achieved by maximizing marginal profit and reducing overhead (operating) expenses. The starting point for planning overhead (operating) expenses can be a new indicator - return on marginal profit (RMP):

This indicator is important when planning the budget for income and expenses of an economic entity, especially if most of the marginal income is spent on covering overhead costs.

This indicator reflects the share of profit in the value of marginal income and shows how many rubles of profit fall on 1 ruble. marginal income. The value of the profitability ratio of marginal income can vary in the range of 1 - 100%.

To improve financial stability and profitability, the expected value of the marginal profit margin is 30 - 40%, which is desirable to be reflected in the internal regulations of the economic entity, having agreed on the specified value with the participants (shareholders).

Based on this indicator, it is possible to form a planned budget of income and expenses quarterly and for the calendar year.

Thus, this indicator fully fits into the criteria of marginal analysis, which consists in determining the optimal ratio of sales, cost and profit based on predicting the level of these values ​​under given restrictions.

Bibliography

1. Zudilin A.P. Analysis economic activity enterprises of the developed capitalist countries. Yekaterinburg: Stone belt, 1992.
2. Practice Journal" CFO"on financial management of the company (http://fd.ru/).

Yu.V. Smirnova

Moscow Humanitarian University

Article author: Igor Nikolaev financial director of the medical and pharmaceutical company "Aconit"
Journal "Consultant" No. 3, 2006

It is difficult for a financial director to evaluate the performance of a trading company if it has many clients from different regions. Suppose one of the partners is farther than the others. Consequently, the cost of shipping the goods to it is higher. But more and trade margin. Is it profitable to work with him? The calculation of the marginal profitability of the transaction will help answer this question.

For trading companies, it is important to calculate the efficiency marketing activities. The CFO can use for calculation such indicators as turnover, trade margin, period of collection of receivables, data on the conditions of work with the client (delays, discounts, etc.), variable costs, and so on.
Let us give a simple example that illustrates the problem under discussion.
The trading company works with the client BUT, which monthly purchases a consignment of goods for 100 thousand rubles with an extra charge of 30 percent on the terms of a deferred payment within 14 days. And the company has a client B who buys for 80,000 rubles a month. But his margin is 20 percent higher, and he pays not on credit, but in fact. The question arises: which client is more interesting?
This task can be made more difficult by introducing additional parameters. Client BUT located in the Leningrad region. The cost of delivery of goods at the expense of the seller is one thousand rubles per month. Client B located in the city of Magadan. The goods are delivered to him by air, and this costs the trading company 5 thousand rubles a month. Client B participates in a marketing campaign. Upon reaching the indicator of quarterly turnover of 300 thousand rubles, he receives a bonus of 10 thousand rubles.
There are a lot of such conditions. Therefore, a trading company needs to have a single criterion for evaluating certain conditions of work with customers. It can be used to find out, for example, that the client BUT"more interesting" client B on the X rubles, and this or that operation is unprofitable, since the profit from the client will decrease by y rubles.
Such a single criterion is marginal profitability. It is calculated as This is the ratio of marginal income to the amount of sales for the reporting period. This indicator characterizes the efficiency of the company's marketing activities and the structure of its costs.

Performance indicators

There are several main indicators of sales effectiveness. The main ones are: trade margin (TN),marginal profitability (MR),gross profit margin (RVP) and net profit margin (RFI). Why is marginal profitability the most useful of these?
As you know, most businesses strive to get the highest possible profit. It is defined as the difference between a firm's income and its expenses. Expenses, in turn, are divided into variables (depending on the volume of sales) and fixed (do not depend on turnover).
Thus, we can derive a simple formula:
Profit = (Income - Variable Costs) - Fixed Costs = Margin - Fixed Costs.
So, there are two main ways to increase profits. First, increase your margin. Second, reduce fixed costs. What is easier to do? The answer is obvious - increase the margin. Indeed, in an efficient company, fixed costs are a priori at a fairly reasonable level, and the potential for their reduction is small compared to the opportunities for margin growth.

Margin Calculation Example

Let's use the marginal income formula:
Margin = Realization - Realization / (1 + Selling Margin) - Variable Costs.
Accordingly, in order to increase the margin, we need to increase turnover, increase the trading margin, or reduce variable costs. Or do all of the above at the same time. The results of these activities can be assessed by calculating marginal profit (as an amount in rubles) and marginal profitability (as a percentage of turnover).
Consider one of practical examples using this approach: analysis of the effectiveness of marketing campaigns and other sales promotion activities.
Companies often hold various contests, promotions and provide bonuses to customers. Marketing promotions are usually expensive. Therefore, it is very important to control the effectiveness of the use of funds allocated for such activities.
First, a marketing promotion is effective if the increase in margin (defined as the selling margin minus direct costs) exceeds the cost per share. Second, the cost per share should include all costs associated with the share. This includes the time spent by company employees on holding an event, an increase in indirect costs in connection with the action (for example, the cost of telephone calls).
If such an analysis can be carried out, it becomes possible to determine the true attractiveness of the client for the company. To do this, you first need to calculate the turnover of transactions with the client for the reporting period (for example, a month). After that, the turnover is divided by the actual markup percentage. We receive a trade margin per client. From it you need to subtract all direct costs associated with the client (transport, storage, etc.). So we find out the amount of margin for the client. From it it is necessary to subtract the costs for the client, which are associated with the conduct of marketing campaigns. The final figure (adjusted margin) is divided by the client's turnover. We get the true profitability of sales for this partner.
This indicator can already be actively used in the price and financial policy. It happens that the client who buys at the highest prices is not the most profitable for the firm, since there are many direct costs associated with it. Suppose a partner is located in a remote region and the transportation costs for delivering goods to him are very high. He actively participates in promotions, and the costs simply “eat up” the high margin. And according to the criterion of profitability and adjusted margin, it is already possible to carry out individual work with clients, offer them various bonuses, individual conditions, etc.
You can analyze the effectiveness of marketing campaigns:

• for each client;
• for the event as a whole.

The most convenient is the analysis of efficiency by customers. Let's look at this approach with a simple example.
Let's go back to client A. He provides a turnover of 100,000 rubles per month. The trade margin for it is 30 percent, and direct costs - 5 percent of the turnover. It is possible to attract client A to a marketing campaign. At the same time, its turnover in the next month will increase to 180,000 rubles, while maintaining the margin and the share of direct costs. The share price is 10,000 rubles. Is it advisable to carry it out?
Currently, the customer margin is 100,000 - (100,000 / 1.30) - (100,000 * 0.05) = 18,077 rubles. After the promotion, the turnover will increase, and the margin will be 180,000 - (180,000 / 1.30) - (180,000 * 0.05) = 32,538 rubles. Since the increase in margin (14,461 rubles) is greater than the cost per share (10,000 rubles), it is advisable to carry it out.

Special marketing promotions

It is not always possible for the CFO to conduct a performance analysis for each client. Some marketing promotions are distributed to such a wide range of participants that it is simply impossible to attribute them to someone in particular. For example, scale advertising campaign in the media. Advertising reaches many. But the firm can see the effect only through the growth of turnover. Moreover, for all customers at once, including new customers who appeared precisely as a result of the action.
In this case, the analysis methodology will be different. There are also two options here. If the circle of clients who are engaged in the action is finite and known, then the analysis methodology is similar to the analysis of individual clients. The financial director determines the turnover for the group under study, calculates the trade margin, subtracts direct costs. As a result, he receives a margin on a group of clients. You have to subtract the cost per share. The result will be the adjusted margin per customer group. If the margin growth was higher than the cost per share, then the latter was effective.
Group margin growth can be allocated to individual clients to take advantage of knowing the exact margin for each client. To do this, you can use different distribution bases. The most suitable of them is ranking by turnover or cost of products that are sold to each client.
If the list of clients is endless, then first you need to take the current turnover of the company (before the promotion). Then estimate the future turnover and margin in case the promotion is not carried out. Then you need to determine the true turnover and margin of the company after the action. Finally, from the margin gain (the difference between the expected margin without the stock and the actual margin after the stock), subtract the direct cost per share. As a result, we find out the effect of the action. If it is positive, the stock was profitable for the firm.
In this case, the most difficult thing is to estimate what the margin will be if the action is not carried out. Only those companies whose products do not experience seasonal fluctuations in demand, and whose sales dynamics are stable and predictable, can limit themselves to calculating the turnover for the previous period.
Thus, marginal income and marginal profitability are the most adequate indicators that characterize the results of the firm's efforts to maximize profits from sales activities.

Specific marginal profitability
Anastasia Mukhamedyarova, economist of the planning and economic department of the UMC Railway Transport
Specific marginal profitability is calculated as the ratio of marginal profitability to the duration of the financial cycle.
The duration of the latter includes the time from the receipt of raw materials to the receipt of money for the goods. From this time subtract the time from the purchase of raw materials to its payment.
Suppose a company sells two types of products. The company's specialists calculated the marginal profitability and received: BUT– 47 percent, goods B- 316 percent. The duration of the financial cycle is 32 and 46 days, respectively. The specific marginal profitability will be 1.46 percent ( BUT) and 6.87 percent ( B). Based on this, the company decided to reduce the duration of the financial cycle of the product BUT and reduce sales volume. The cost of it will decrease in a corresponding proportion. Marginal profitability data will not show any changes. And the indicator of specific marginal profitability will increase, since the numerator will remain the same, and the denominator will decrease.
Based on this indicator, the company can calculate how to reduce the volume of sales, while maintaining marginal profitability at the same level.

For reference
Trade margin \u003d Realization - Cost
Trade margin = (Sales - Cost) / Cost

Gross Profit = Marginal Income - Fixed Costs
Marginal income = Selling margin - Variable costs
Gross Margin = Gross Profit/Turnover
Net profit = Gross profit - Non-operating expenses
Net profit margin = Net profit / Turnover
Marginal profitability = Marginal income / Turnover

Marginal profit is the difference between the proceeds from the sale of products that were produced by the enterprise and the costs that appeared as a result of the creation of these products.

A little about margin

Very often it is also called the coverage amount. This can be explained by the fact that it is the revenue that the company receives to cover wages and to create so-called permanent profits. That is, if the marginal income (profit) is higher each time, then this means that the cost recovery will be carried out faster, and the company will receive more net profit.

Marginal income in Russia

AT Russian Federation the term "marginal profit" is not used as often. With some stretch, we can say that gross profit is practically the same thing, because the meaning of these two operations is very similar. But they also have some differences.

Gross income in the calculation uses non-production and production costs, but in the marginal approach they are considered more elastic. At the same time, such income is calculated both per unit of sold products and per unit of output. Why is it necessary to calculate it? To obtain the most accurate information on how big profit brings the company each unit of output.

At the same time, in Russia there is another important term that is directly related to the money received - the marginal profit of the enterprise. It includes all income from the sale and production of various products.

Very often marginal profit is incorrectly identified with the so-called direct costing system. But they have significant differences that experts in this field are aware of. As a rule, on the territory of the Russian Federation marginal income is used in the market and production area entrepreneurship, because it is here that he brings the maximum result.

When can a company be considered to be making money?

In the event that the analysis of marginal profit shows that the income of the enterprise covers well enough any variable costs we can say that the profit here exists at a high level. At the same time, in the analysis process, it is necessary to take into account the entire range of manufactured goods. Marginal profit also helps to understand which types of products are the most profitable for production in terms of sales, and which are unprofitable or completely unprofitable.

What determines marginal profit and how can it be increased?

As a rule, it primarily depends on the variables on modern market indicators.

This is the cost of manufacturing one unit of goods and the price at which this product can be sold.

In practice, marginal profit can increase. How to get more income?

First, you can mark up your product range several times more. Secondly, you can produce and, accordingly, sell more product. But it is best, of course, to combine these two methods, then you will get higher profits. Of course, these methods seem simple, but sometimes they are not so easy to implement.

First of all, this is explained price competition, which nevertheless dictates its conditions in setting the price for a particular product. Sometimes it happens that it is impossible to raise the cost of production higher. Also, limits on the cost are often determined by the state, especially for basic necessities. Moreover, it often happens that a large number of cheap products on the market brings a decline in its quality. This, in turn, may lead to the fact that there will be no demand for it.

Determine marginal profit

When an enterprise releases several products at the same time, then marginal profit and its calculation are a very important part of operational analysis. It should also be remembered that the larger the volume of products a company produces, the less cost it will receive per unit of goods. It works and vice versa. Since this necessarily includes the calculation of such fixed costs, like renting premises, paying taxes, and so on, then marginal profit, the formula of which

• MP \u003d PE - Zper,

shows how much should cover the costs of production. In this formula, MP shows the marginal profit, NP - the net profit of the enterprise, and Zper - these are variable costs. If your income only covers the costs of the company, then it is at the break-even point.

Why do you need to know what marginal profit your company has?

First of all, this formula will allow you to understand which product you produce is the most in demand on the market at the moment. It is on its manufacture that you need to focus in order to get a sufficiently large income. By calculating the margin for each product, you can get an almost complete picture of your company's performance and profitability.

The negative aspects of this method

1. There is a linear relationship between costs and revenues, which means that even with an increase in the volume of goods produced, the price in the market may not change. At the same time, at certain points, the cost can also decrease or increase very sharply.
2. Fixed and variable costs, which can be considered in terms of relation to the costs per unit of goods, may have other values ​​in terms of conversion. For example, constants can become variables, or vice versa. In this case, the constants will directly depend on the volume of output, and the variables at the moment will not change. This may slightly confuse the information received, which gives us marginal profit (including its calculation).
3. Influencing factors will not change. This includes technology, scale of production, labor productivity, labor rates, selling price of products. That is, only volume can be a variable factor.
4. Production and sales must be equal in volume.

Marginal profit is the amount Money, remaining after deducting from the income from sales the costs associated with the production of goods or their purchase. If all other types of expenses are taken away from it, then the net income of the enterprise for the reporting period will be obtained.

Formula for Determining Marginal Profit

Total sales income - all costs associated with the production of goods or their purchase / Total sales income

Thus, if a company earned 250 thousand rubles from the sale of goods that cost it 100 thousand rubles, then its marginal profit will be the difference between revenue and costs as a percentage:

250,000 - 100,000/250,000 = 0.60 or 60%

Why do you need to calculate marginal profit?

The closer your score is to 100%, the better. After all, the higher this indicator, the more money your company has to cover other types of expenses.

In most cases, the figure drops well below 100%: most likely you will get less than 50%.

Marginal profit can be used not only to calculate the profitability of a company, but also to calculate the profitability of each individual product or service line. This helps to determine the feasibility of selling certain goods, as well as adjust their pricing. If the overall profit margin is too low, the viability of the enterprise as a whole is called into question. However, if all other costs are minimal, then it makes sense to continue the business. Additional adjustments in marketing and pricing are also welcome.

Improving the margin indicator

In the case of a low profit margin, look at the fixed costs associated with the product: the cost of material for manufacturing, the cost of shipping, and so on. Try to lower them, and also pay attention to a possible increase in the market price of a product or service.

The lower this indicator is, the more difficult it is to keep the business afloat. Don't be afraid to adjust different spending paths. It is possible to move the company to another place with a lower rental rate or downsizing can increase your marginal profit.