Return on sales in terms of net profit increased. Profitability - what it is, types and formulas, how to calculate and increase profitability. More detailed factor analysis of profitability of sales using formulas

Any activity related to sales is carried out with the aim of making a profit. It is the actual sale that provides income to the business, because at this stage the company receives money from the client. Profit, in turn, is the main goal of business as such. In order to achieve it, it is not enough just to make sales. They need to be profitable. Simply put, they are effective. Assessing profitability of sales is a comprehensive approach, which we will talk about.

Definition of “profitability”

Return on sales, or return on sales ratio, is an indicator of the financial performance of a company, demonstrating what portion of its revenue is profit.

If we express this concept as a percentage, then profitability is the ratio of net income to the amount of revenue received from the sale of manufactured products, multiplied by 100%.

Thanks to the profitability indicator, one gets the impression of the profitability of the enterprise’s sales process or how much the products sold pay for the costs of their production. Thus, the costs include: the use of energy resources, the purchase of necessary components, and staff working hours.

When calculating the profitability ratio, the volume of capital of the organization (volume of working capital) is not taken into account. Thanks to the data obtained, you can calculate how successfully competing enterprises operate in your field of activity.

What does profitability ratio mean?

Thanks to this indicator, you can find out how profitable the company's activities are. You can also calculate what share is attributable to the cost price after the products have been sold. Having an idea of ​​the profitability of sales of its products, the company can control all costs and expenses, as well as adjust its pricing policy.

Important! Different manufacturing companies produce a wide variety of products, and to sell them they also use different strategic and tactical ways and advertising techniques, therefore the value of their profitability ratios will be different. Even if two firms producing goods received the same revenue and profit, and also spent the same amount on production, then after deducting tax costs, their profitability ratio will be different.

Also, the planned effect of long-term investments will not be a direct reflection of profitability. If an enterprise decides to improve the production technological cycle or purchase new equipment, then for some time the resulting coefficient may decrease significantly. However, if the sequence of introduction of new technologies and equipment at the enterprise was determined correctly, then over time the company will demonstrate increasing profitability indicators.

How is return on sales calculated?

To calculate the profitability of sales, use the following formula:

ROS = NI/NS * 100%

• ROS— Return on Sales – profitability ratio, expressed as a percentage.
• NI— Net Income – data on net profit expressed in monetary terms.
• N.S.— Net Sales - the amount of profit that the company received after selling products, expressed in monetary terms.

If the initial data is correct, then the resulting formula will allow you to calculate the real return on sales and find out how profitable your company is.

Calculation of a company's profitability using an example

When starting calculations, it is necessary to remember that using a general formula you can find out how effective or ineffective the enterprise’s activities are, but it will not allow you to find out in which part of the production chain there are problems.

For example, a company analyzed its activities and received the following data:

In 2011, the company made a profit of 3 million rubles, in 2012 the profit was already 4 million rubles. The amount of net profit in 2011 amounted to 500 thousand rubles, and in 2012 – 600 thousand rubles.

How can you find out how much profitability has changed over two years?

Calculations show that in 2011 the profitability ratio was:

ROS 2011 = 500000/3000000 * 100% = 16.67%

ROS 2012 = 600000/4000000 * 100% = 15%

Let's find out how much profitability has changed over the estimated time:

ROS = ROS2012 – ROS2011 = 15-16.67 = - 1.67%

Calculations showed that in 2012 the company's profitability decreased by 1.67%. The reasons for the decline in profitability are not yet clear, but they can be found out if you conduct a more detailed analysis and calculate the following indicators:

1. The change in tax costs that is needed to calculate NI.
2. Calculation of profitability of manufactured goods. Produced according to the following formula: Profitability = (revenue - cost - expenses) / revenue 100%.
3. Profitability of sales personnel. For this, the formula is used: Profitability = (revenue - salary - taxes) / revenue 100%.
4. Advertising profitability of manufactured products. It is calculated using the following formula: Profitability = (revenue - advertising costs - taxes)/revenue * 100%.

When calculating these indicators, it is necessary to take into account the following features of the production process:

1. If the company is engaged in the provision of services, then the cost includes: organizing workplaces for sales specialists. For example, you need to purchase computers. Rent a room, allocate a telephone line, pay for advertising, purchase software for work and pay for a virtual PBX.
2. When calculating the profitability of sales specialists, you can use a fairly simple formula - divide gross profit by total revenue. But it is better to use it when working with specific indicators: the profitability of each specialist, a specific type of product, or a section on the website.

What factors influence profitability of sales?

You can increase the profitability of sales if you reduce the cost and level of expenses. However, this must be done thoughtfully and carefully, since such savings may reduce product quality or negatively affect the work of staff. To avoid this, you should take a comprehensive approach to the issue of increasing profitability and study the following aspects:

• Staff efficiency.
• Sales channels.
• Competing companies.
• Sales and cost process.
• Efficiency of working with CRM.

Once these components of the business have been studied, you can move on to developing sales strategies and tactics. It is also important to understand how profitable each group of products is individually.

For example, a company offers clients three types of real estate for rent:

• Residential.
• Warehouse.
• Office.

Having applied calculations, for residential real estate we received the highest rates of return on sales, so we can increase the costs associated with this group of services, since they will pay off.

Increasing profitability in many cases also depends on the human factor, for example, on the level of employees involved in the production process, so the business owner needs to pay attention to:

• Effective use of specialist knowledge.
• Improvement of employee qualifications.
• Optimizing costs for specialists who are not directly involved in the production process.
• Introduction of automated systems and innovative technologies.

Profitability may also depend on the industry. Thus, the heavy engineering industry shows a slow increase in sales profitability, and the highest rates can be observed in the trade or mining industries. For example, in 2014, the highest profitability indicators were noted in the chemical industry - 16.7% and in the field of subsoil development - 24-33%.

Profitability is influenced by the following features of the enterprise:

• Seasonality of sales.
• What activities does the company engage in?
• The area in which the company sells its products (regional characteristic).

Ways to increase profitability

The profitability indicator does not always meet the expectations of business owners. In this case, it is important to find the reasons for low profitability and ways to eliminate these reasons. There are many options for getting out of the situation; we tried to highlight the main ways to increase the profitability of sales.

We reduce costs. Reducing the cost of goods is the best incentive for profit growth. The main thing is not to do this at the expense of quality. It’s better to optimize logistics, work on the professionalism of managers, and negotiate more favorable terms with the supplier.

We are raising prices. A difficult step that few are willing to take. Despite the fact that indecision in this matter is precisely the main mistake. Dumping is the path to killing business. Prices can and should be raised. You just need to do this wisely. Firstly, no sudden jumps. Secondly, be sure to warn customers ahead of time that prices are about to increase. This is an unspoken rule of good manners and a way to maintain trust in yourself and your company.

We focus on the client. For any product, the main thing is not the price, but the value that it represents for the buyer. The sales description should describe in detail what the main advantage of the product is, what problems it helps to solve, etc. This should be information that will force the client to buy the product right here and now. If a person understands that you are really giving him the best offer, then raising the price will fade into the background for him. Naturally, for our part we need to ensure good quality of goods and service. No sales text will help you if you don’t properly organize delivery or if you sell people blatant nonsense. And on the contrary, with a loyal attitude, a person will become your regular customer.

And achieving a loyal attitude is simple: meet halfway where it is appropriate. If the buyer needs extra-urgent delivery, implement it. A person is dissatisfied with a purchase (for objective reasons) - offer a refund, replacement or small compensation at your discretion.

People appreciate not only a professional, but also a human approach. Which ultimately has a positive impact on profitability of sales.

We sell related products. Standard situation: a manager at a hardware store, after purchasing a laptop, offers to take a spray to clean the monitor. A trifle, and one that you were unlikely to initially intend to buy. However, many agree. And all because this little thing will really be useful for them. Analyze which items from your assortment can go with the main product and offer them to the buyer. In online stores, this technique is usually done using the block “Buy with this product.”

P.S. This method is also suitable for b2b sales. Here, your main task will be to convey to your partner that the additional product will give more sales to his company first of all. As an argument, you can use example statistics on other partners.

Profitability- a relative indicator characterizing the degree of economic efficiency of using a resource (material, monetary, labor). It is calculated using special formulas and usually has a percentage expression. Profitability can be called the most important indicator for assessing the activities of a commercial enterprise.

This concept is used very widely and is divided into several types, but, in principle, it represents the ratio of what is received from an activity to any asset or resource.

Therefore, the profitability ratio is calculated by dividing the amount of profit by the value of interest. Both values ​​are taken in the same units. Since it is quite difficult to express profit in non-monetary form, the denominator is also given in monetary terms. Most often, profitability is calculated as a percentage.

It should be noted that the approach to profitability ratios is not as strict as to purely mathematical formulas; there is a replacement of words that are similar in sound and content to concepts. Thus, the profitability of production can be considered both as the profitability of the process and as the profitability of the production complex. Therefore, it is worth considering not only the name of the term, but the components of a specific formula and their practical meaning.

The most common profitability indicators are:

• Product profitability(sold) - the profit received from the sale of a certain amount of products is divided by the cost of these products.

It is calculated in approximately the same way profitability of services sold. Only the denominator includes the costs of providing the quantity of services specified in the numerator.

• Return on fixed assets- the ratio of net profit from activities for the period to the cost of fixed assets.
• Enterprise profitability- equal to the ratio of profit to the total cost of fixed and working capital of the enterprise
• Personnel profitability- represents the ratio for a certain period to the average number of personnel for the specified period.

The following indicators are also used:

• General- the ratio of net profit for the period to the average total value of the enterprise's assets.
• - the same as the above ratio, but in relation to the organization’s own capital.
• Return on assets used- profit before taxes and mandatory interest in relation to the amount of equity capital and long-term loans.

The list of profitability ratios used is not limited to those listed above. As economic and financial relations develop and investment develops, new, previously unused coefficients appear. The general rule that unites them could be roughly expressed as the ratio of the amount of benefit received (profit) to the resource used to obtain it.

Let us dwell on the indicators most frequently used in our conditions and, therefore, informative for us:

Return on sales(ROS, from the English Return on Sales) is a very important indicator that reflects the share of profit in the total amount (turnover). Most often, the calculation uses profit before taxes - operating profit. This seems justified, since the amount of taxes is not directly related to the efficiency of activities, and profitability is, first of all, an indicator of economic effect. But it can also be applied net profit margin. This allows you to better visualize the real benefits of sales.

Accordingly, return on sales can be calculated using the following formulas:

Total Return on Sales = Gross Profit / Revenue;

Net return on sales = Net profit / Revenue.

The concept of revenue can be replaced by the concept of turnover, which does not affect the essence of the relationship.

These coefficients are used primarily to assess the current state of affairs. Return on sales allows you to determine the operational efficiency of the organization, i.e. her ability to organize and control current activities. Which, in turn, shows the direction of the company’s movement, decline or growth.

The profitability of products sold is defined as the ratio of profit from sales of products to the amount of costs for the production and sale of these products. Costs, in this case, include material costs of production (cost of raw materials, components, energy, etc.), labor costs, overhead costs, and trading costs.

Rrp = (CPU - PSP)/PSP x 100;
Where:

• Ррп - profitability of sold products;
• SP - selling price of the product;
• PSP is the full cost of this product.

Sometimes this ratio is called the profitability of production (as a process).

The profitability of production (as a production complex) is calculated as the ratio of the amount of profit (total) to the sum of the costs of fixed and standardized working capital.

ORP = OP/(OS+OBS);

Where ORP is the overall profitability of production;

OS - fixed assets of the enterprise (buildings, structures, equipment);

OBS - normalized working capital (inventory, semi-finished products for the production cycle, finished products in warehouses).

Based on the above, we can conclude that the concept of profitability is very broad. Methods and formulas for its calculation are a flexible working tool for determining profitability and benefits from certain investments in material, human and other resources and assets.

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 in the form of gross revenue as a percentage.

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;

PR— 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.

PE = 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.

Reasons:

• 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 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.

Not only its management is interested in the efficiency of an enterprise, but also investors (both real and potential) and employees (the more efficiently the organization operates, the greater the increase in wages the employer can provide). Financial analytics will help to correctly assess the efficiency of an enterprise, which can give an objective idea of ​​the current state of affairs and make a forecast for subsequent periods. 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 ones.

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

How to calculate product profitability

In general, the formula for calculating the profitability of products sold can be presented as follows:

Rpr = Pr / Ss * 100%,

where Rpr is the product profitability ratio;
Pr – the value of profit from sales of products;
CC – production cost.

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

Depending on the ultimate goal of the product profitability analysis, the coefficient can be calculated:
• At full cost of production.
• According to the production cost of production.
• By profit from sales.
• By net profit.

Balance calculation formula

Like any other profitability ratio, this indicator can be calculated based on balance sheet data. The numbers from Form 1 are not used; all necessary information is contained exclusively in Form 2 (financial performance report).

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

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

In our country, a normal indicator value of 12% is considered.

It is worth mentioning that this figure can vary over a fairly wide range, depending on the industry the enterprise is focused on. For the most honest assessment of efficiency, the value of the coefficients 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 tax authorities determine the schedule for carrying out inspections. Moreover, the Federal Tax Service may be suspicious if the indicator is either too low or too high. A critical deviation from industry averages is considered to be 10 percent or more.

What can determine the profitability of an enterprise’s products?

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

• From 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 product profitability ratio increases, otherwise it decreases.
• Change in the average value of selling prices. Has a direct impact on the coefficient value.
• Changes in the level of cost of goods. It is inversely related to the level of product profitability. As the cost increases, the value of the indicator decreases, and vice versa.

Price increases (even if costs increase) can be controlled, but only if the company is a monopolist in its field, and its closest competitors have relatively low business activity and have virtually no impact on the company’s demand indicators.

Calculation of indicators

Example 1

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

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 every ruble invested by the enterprise in the production of this product brings 81.8 kopecks of net profit, which is a fairly good result.

By conducting a comparative analysis with previous time periods, we can draw some conclusions about the competitiveness of the product on the market. So, if the indicator decreases, we can talk about a drop in consumer demand, or about insufficient production efficiency.

Example 2

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

The profitability of individual 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 / CC3 * 100% = (61 – 66) / 66 * 100% = -7.5%

The negative profitability of the third product immediately catches your eye. For every ruble invested in its production there will be 1 ruble 7.5 kopecks in losses. It is worth thinking about stopping its production, or reducing production costs (preferably without sacrificing quality).

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

How indicators are analyzed

A specialist who is well versed in economics must know not only how to calculate the profitability of products and how to determine its value. A competent analyst will be able to extract a lot of useful information from the calculated indicator values. To maintain the level of the coefficient at the required level, or to increase its value, there are several ways.

In the activities of an enterprise, profitability is one of the most important indicators; it reflects the economic efficiency of its work over a certain period of time and is calculated to present a real picture of the business to the founders of the project, to make the enterprise attractive to investors (for example, when planning new directions of the project), to instill confidence in reliability to creditors. A formula that is well known to economists helps determine the profitability of sales, but a general understanding of this is necessary for the head of the company and those who plan to invest their funds in it.

General concept of profitability indicator and its components

First you need to find out what profitability is and on the basis of what indicators it is determined. In essence, this concept is understood as the efficiency of using funds or resources invested in an enterprise. This term came to us from the German language, in which “rentabel” means “profitable”. To express it, a percentage ratio or a profitability ratio in physical terms can be chosen.

If they talk about the profitability of sales and the enterprise as a whole, then they mean this indicator for all its resources. In the economic analysis of the project, in addition to the main turnover, the profitability indicator in relation to production, services, capital is considered, the profitability of personnel is taken, and there is also such a basic concept as return on assets.

A special indicator that is calculated to analyze economic activity is the profitability threshold. It is understood as that income from the sale of products that is able to fully cover the costs of the enterprise, but does not bring profit from the activity.

Sales profitability, calculation formula and features

The return on sales ratio shows how much each invested ruble brings income to the owner, in other words, it is an indicator of the share of profit in the volume of products or goods sold.

This ratio is somewhat different from other main indicators in that it does not reflect the profit of the enterprise, but exclusively the profitability of the sales process. It is calculated using a special formula in order to show the difference between the sales price and the costs that were made to purchase goods, produce or provide services.

An important feature is that the return on sales ratio does not take into account the amount of working capital or fixed capital that was necessary to obtain a given amount of profit. This feature allows you to compare the return on sales ratios of companies with different turnover of fixed assets and, based on the data obtained, analyze the effectiveness of this particular project.

The formula for calculating the profitability threshold can be represented in several ways. Most often, calculations are carried out using the formula through gross profit:

where: Pv – gross profit, B – revenue.

Gross profit is the difference between revenue and the full cost of goods (products, services).

Net return on sales is calculated using the formula:

RP (net) = IF/V,

where: Pch – net profit, B – revenue.

Net profit is the difference between revenue and the sum of all taxes, expenses and the full cost of goods (products, services), and revenue should also be exempt from VAT, excise taxes and other mandatory deductions.

According to some experts, the use of the second version of the formula, i.e. in which the profitability ratio is calculated based on net profit, makes the calculation more generalized and somewhat loses the essence of determining profitability specifically from the sales process and the calculated profitability threshold will give some inaccuracy. However, in practice this formula has found wide application.

Often we need return on sales ratios as a percentage; in these cases, the formulas will look like this:

RP = Pv/V*100%

RP pure = IF/V*100%

By calculating this sales indicator in several separate periods using the presented formulas, you can see the dynamics, which will allow you to determine the rationality of new projects and the expenditure of funds on them.

What is a “threshold” and the formula for calculating it

The profitability threshold is one of the most necessary indicators in economic analysis, which reflects whether the level of sales has fully covered the costs incurred for the purchase of goods, production of products or provision of services. Its components are the quantity of goods sold and the income received. The profitability threshold is otherwise called the “break-even point”, i.e. that limit that does not bring profit, but also does not cause damage from costs.

The costs that the profitability threshold entails are usually divided into:

• fixed costs - independent of the quantity of products produced);
• variable costs - with an increase in production volume, they increase proportionally to it.

For creditors, this indicator is especially important; it is calculated to confirm the sustainability of the enterprise.

• in monetary terms;
• in kind.

Profitability threshold (monetary) = revenue * fixed costs / (revenue - variable costs).

Profitability threshold (in kind) = fixed costs / (price of a unit of production - average costs per unit of production).

You can consider the application of the formula using an example. To do this, let’s assume that the company’s fixed costs are 400 thousand rubles, while it is calculated that the variable costs are 10 thousand rubles. for each unit of production and the price of the unit itself is 30 thousand rubles. Substituting the data into the formula, we find that the profitability threshold is: 400 / (30 – 10) = 20.

Therefore, 20 units of product must be produced and sold in order not to incur a loss. This figure shows the threshold for profitability in physical terms.

Neither the profitability ratio (sales, services, enterprise) nor the profitability threshold have clear standards for values; everything completely depends on the specifics of the activity.

Components of the overall profitability of an enterprise

For company founders and potential investors, an important issue is the overall profitability ratio. This indicator reflects the efficiency of the use of resources and property assets in the activities of the enterprise (meaning own funds and funds from circulation).

P = book profit / (average value of fixed assets + average value of turnover assets).

The formula shows the amount of balance sheet profit; it implies income received before tax. It is calculated as follows: expenses (commercial, administrative) are subtracted from the profit from product sales.

In addition, to conduct economic analysis and evaluate activities, different profitability ratios are used, these are: profitability of assets, production, sales and services, fixed capital, profitability of personnel. Only after analyzing each of them separately and as a whole can conclusions be drawn about the profitability and effectiveness of this activity.

Return on assets is one of the economic indicators of core activity, which shows how much invested assets can increase profitability, in other words, how much profit each ruble invested in property brings in when implementing a business project. You can calculate return on assets using the formula: Return on assets = profit for a certain period / average assets.

It can be expressed both in quantitative terms and as a percentage.

When analyzing the activities of an enterprise, there is a division into return on assets:

• current assets - to calculate it, the amount of net profit must be divided by the average annual value of asset turnover;
• non-current - to calculate it, the formula uses the amount of net profit, which must be divided by the average annual value of non-current assets.

The next indicator is personnel profitability. This is also an important profitability ratio that affects the profitability of the enterprise and must be taken into account in financial analysis. It is calculated as the ratio of net profit to the number of employees. Like other ratios (sales, assets), personnel profitability is often expressed as a percentage.