All sales are carried out to achieve the same goal - financial profit. But it is impossible to give an objective assessment of the effectiveness of sales without an indicator of their profitability.
What is profitability?
Profitability of sales, also known as the profitability ratio of sales, is a percentage of the share of profit from each ruble earned. In other words, return on sales is the ratio of net income to the amount of proceeds from the sale of products, multiplied by one hundred percent.
Some entrepreneurs are deluded into thinking that return on sales represents the return on investment. It is not right. The profitability ratio of sales allows you to determine what amount of money in the volume of products sold is the profit of the enterprise minus tax and related payments.
This profitability indicator shows the profitability solely from the sales process itself. That is how much the cost of the goods pays for the costs of the production process of the goods/services (purchase of the necessary components, use of energy and human resources, etc.).
When calculating the coefficient, such an indicator as the amount of capital (volume working capital). Thanks to this, you can safely analyze the profitability of sales of competing enterprises in your segment.
What does ROI show an entrepreneur?
- The profitability ratio of sales allows you to characterize the most important thing for a company or enterprise - the sale of the main products . In addition, the share of the cost in the sales process is estimated.
- Knowing the profitability of sales, the company can control pricing and costs . It is worth noting that different companies produce goods through different strategies and techniques, which causes different profitability ratios. But even if revenue, operating costs, and pre-tax earnings are equal for two companies, their return on sales will be different. This is due to the direct impact of the amount of interest payments on the total amount of net profit.
- Return on sales is not a reflection of the planned effect of long-term investments . The bottom line is that if a company decides to change technological scheme or purchase innovative equipment, then this ratio may slightly decrease. But he will regain his position and surpass them if the modernization strategy was chosen correctly. By the way, if you want to improve the profitability indicator, read the article "increasing the profitability of sales".
How to calculate return on sales?
To calculate the profitability ratio of sales, the following formula is used:
ROS- the English abbreviation Return on Sales, which in translation into Russian actually means the desired profitability ratio, presented as a percentage;
N.I.- English abbreviation Net Income, net profit indicator, expressed in monetary terms;
NS- English abbreviation Net Sales, the amount of profit received from the sale of manufactured products, expressed in monetary terms.
Correct initial data and a dry calculation will allow you to derive the real profitability of sales. The formula for profitability of sales is simple - the result obtained is an indicator of production efficiency.
An illustrative example of calculating profitability:
Unfortunately, the general formula for return on sales can only show the efficiency or inefficiency of the company, but does not give an answer about the problem areas of the business.
Suppose, after analyzing the profitability data for 2 years, the company received the following figures:
In 2011, the company made a profit of 2.24 million dollars, in 2012 this figure increased to 2.62 million dollars. Net profit in 2011 was 494 thousand dollars, and in 2012 - 516 thousand dollars. What changes has undergone sales profitability in 2012?
The profitability ratio for 2011 is equal to:
ROS2011 = 594 / 2240 = 0.2205 or 22%.
The profitability ratio for 2012 is equal to:
ROS2012 = 516 / 2620 = 0.1947 or 19.5%.
Let's calculate the final change in sales profitability:
ROS = ROS2012 - ROS2011 = 22 - 19.5 = -2.5%.
In 2012, the profitability of sales of the enterprise decreased by 2.5%.
Here you can see that profitability has decreased by 2.5% over 2 years, but the reasons are not clear until a more detailed analysis is made. It includes:
- Examine the change in tax costs and deductions that are required to calculate in NI.
- Calculation of the profitability of a product / service. Formula:
Profitability \u003d (revenue - cost * - costs) / revenue * 100%
- The profitability of each sales manager. Formula:
Profitability \u003d (revenue - salary * - taxes) / revenue * 100%.
- Advertising profitability of goods/services. Formula:
*If you provide services, then the cost includes: organization of a workplace for sales managers ( computer technology, rent of sq.m., telephone equipment, utility bills proportional to the person, etc.), their salary, expenses for paying for the phone, advertising, expenses for the necessary software (CRM, 1C, etc.), payments for virtual ATS.
Immediately, we note that it is possible to use a simpler formula for the return on sales: ROS = GP (gross profit) / NS (total revenue). But it is more appropriate for calculating “narrow” indicators (profitability for each manager, for a specific product, for a page on a website, etc.).
It is important to note that each manager can have a different sales structure: someone sells only expensive and rarely, someone small, but often - this will be the main difficulty in calculating the net profit (margin after taxes). It is necessary to resort to the margin data of each product for each seller using CRM.
- Calculation of sales volumes and margins. Perhaps the profitability has fallen because. the most marginal goods ceased to be on sale.
| Site sale | Sale of contextual advertising | |
|---|---|---|
| Profitability by formula | (500K - 135K - 90K for taxes)/500K = 55% | (900k - 600k - 162k for taxes)/900k = 15% |
| Sales volume per month | 500 thousand rubles (cost of 5 sites) | 900 thousand rubles (cost of 3 projects) |
| Material costs | 15 thousand rubles (buying a domain, paying for software, advertising, etc.) | 600 thousand rubles (money given to advertising services, etc.) |
| Labor costs | 120 thousand rubles. (salary for at least 3 employees) | 40 thousand rubles. (salary for 1 employee) |
We said above that part of increasing the profitability of sales is to reduce costs and expenses. But, at the same time, we recommend that you be careful with this item. may follow Negative consequences in the form of a deterioration in the quality of goods (services), a decrease in the efficiency of the work of specialists. To avoid this, it is necessary to approach the issue of increasing the profitability of sales comprehensively! It includes a study: The table shows that, despite the fact that contextual advertising brought to the company's current account more money, but its profitability is 3.7 times lower. This means that if managers start selling sites poorly, but contextual advertising- means lowering profitability is inevitable.
- competitors
- Sales and cost structures
- Sales channels
- CRM usage
- Manager effectiveness
After studying all this, you can proceed to the development of tactics and sales strategies. And only now to make operational decisions.
The completed data shows that it is possible to increase the costs per page of offices. they provide the highest return on business.
Calculating profitability for all layers is a rather laborious task, especially if you have not done this before, and you need an analysis for several months or even years (more than one week). And still, in the end, you can get an answer to the question “where are the strongest and weakest points”, but not understand what and how to do next. Therefore, we offer you our assistance in collecting, analyzing, recommending, executing and monitoring the optimization of the sales department to increase the profitability of the business.
The profitability of sales indicator reflects what part of the company's revenue is profit.
The sales profitability formula is calculated for a certain period of time, the unit of measurement is percentage. General formula to find the profitability of sales is as follows:
Rp \u003d (P / V) * 100%,
where Rp - profitability of sales,
P is the profit of the enterprise,
B is the company's revenue.
Types of return on sales
When calculating the profitability of sales are used different kinds profit, so there are different options for the formula for profitability of sales. Consider the most common types of return on sales:
- Return on sales in accordance with gross profit, which is calculated as the quotient of dividing gross profit by revenue (as a percentage):
Rp (VP) \u003d (Pval / V) * 100%
- Operating return on sales, which is the quotient of dividing profit before tax by revenue (in percent):
Rp (OP) \u003d (Pop / V) * 100%
- Return on sales in accordance with net profit, which is the quotient of net profit divided by revenue (as a percentage):
Rp (NP) \u003d (Pch / V) * 100%
What does the ROI formula show?
Using the profitability of sales formula, you can find a coefficient that shows how much of the profit will fall on each ruble earned. The values \u200b\u200bfound using the profitability formula will differ for each enterprise, since their assortment and competitive strategies differ.
Most often found three types of return on sales and they show:
- Gross profit margin shows how many percent of gross profit is in each ruble of goods sold;
- The operating profitability of sales will show what share of the profit will fall on each ruble that is received from the proceeds from which interest and taxes are paid;
- Return on sales based on net profit reflects what share of net profit will fall on each ruble earned.
Determination of profitability of sales contributes to optimization pricing policy enterprise, as well as costs that relate to commercial activities.
The meaning of the formula for profitability of sales
The return on sales is often referred to as the rate of return, as this indicator reflects specific gravity profit in revenue.
Analyzing the coefficient that characterizes the profitability of sales, it is important to note that if the profitability of sales decreases, this indicates a decrease in the competitiveness of the product and a decrease in demand for it. Then the company's management should think about carrying out activities that help stimulate demand, increase the quality of products sold or win new niche on the market.
Revealing trends in changes in the profitability of sales in dynamics, economists single out the reporting and base periods. As the base period, use the indicators of previous years (years) when the company received highest profit. The definition of the base period is necessary to compare the profitability ratio of sales for the reporting period with the ratio that is taken as a basis.
Examples of problem solving
EXAMPLE 1
EXAMPLE 2
| Exercise | Calculate the indicator of the operating profitability of sales according to the indicators taken from Form No. 2 of the Profit and Loss Statement The following indicators are given: Profit before tax - 15,025,000 rubles, Revenue for this period is 30,215,000 rubles. |
| Solution | Operating profitability is calculated using the following formula: Rp (OP) \u003d (Pop / V) * 100% Rp(OP)=(15025000/30215000)*100%=49.73% Conclusion. Since this type of profitability shows what part of the profit is in each ruble of revenue (excluding interest and taxes paid), we can conclude that after paying the corresponding tax payments, each ruble of revenue will contain 49.73% of profit. |
| Answer | Operating return on sales is 49.73% |
Consider the profitability ratio of sales(ROS). This indicator reflects the efficiency of the enterprise and shows the share (in percent) of net profit in the total revenue of the enterprise. In Western sources, the profitability ratio of sales is called - ROS ( return on sales). Below I will consider the formula for calculating this coefficient, give an example with its calculation for a domestic enterprise, describe the standard and its economic meaning.
Profitability of sales. Economic meaning of the indicator
It is advisable to start the study of any coefficient with its economic meaning. What is this ratio for? It reflects business activity enterprise and determines how effectively the enterprise operates. The return on sales ratio shows how much Money from the sold products is the profit of the enterprise. What is important is not how many products the company sold, but how much net profit it earned net money from these sales.
The profitability ratio of sales describes the effectiveness of the sale of the main products of the enterprise, and also allows you to determine the share of the cost in sales.
Return on sales ratio. How is profitability calculated? Calculation formula according to balance sheet and IFRS
The formula for return on sales by Russian system accounting statement looks like this:
Return on sales ratio = Net profit / Revenue = line 2400 / line 2110
It should be clarified that when calculating the ratio, instead of net profit, the numerator can be used: gross profit, profit before taxes and interest (EBIT), profit before taxes (EBI). Accordingly, the following coefficients will appear:
Gross profit margin on sales = Gross profit/Revenue
Operating profit ratio =EBIT/Revenue
Return on sales ratio for profit before taxes =EBI/Revenue
I recommend, to avoid confusion, use the formula, where the numerator is net profit(NI, Net Income), as EBIT calculated according to domestic reporting incorrectly. It turns out the following formula for Russian reporting:
In foreign sources, the profitability ratio of sales - ROS is calculated by the following formula:
Video lesson: “Sales profitability: calculation formula, example and analysis”
Profitability of sales. An example of a balance sheet calculation for JSC Aeroflot
Let's calculate the return on sales for Russian company OJSC Aeroflot. To do this, I will use the InvestFunds service, which allows you to get the company's financial statements by quarter. Below is the import of data from the service.
Profit and Loss Statement of JSC “Aeroflot”. Calculation of the profitability ratio of sales
So, let's calculate the profitability of sales for four periods.
Return on sales ratio 2013-4 =11096946/206277137= 0.05 (5%)
Return on sales ratio 2014-1 = 3029468/46103337 = 0.06 (6%)
Return on sales ratio 2014-2 = 3390710/105675771 = 0.03 (3%)
As you can see, the return on sales slightly increased to 6% in the first quarter of 2014, and in the second quarter it doubled to 3%. However, the profitability is greater than zero.
Let's calculate this coefficient according to IFRS. To do this, we take data on financial statements from the official website of the company.
Aeroflot IFRS report. Calculation of the profitability ratio of sales
For the nine months of 2014, the return on sales ratio of JSC Aeroflot was equal to: ROS=3563/236698=0.01 (1%).
Let's calculate ROS for 9 months of 2013.
ROS=17237/222353=0.07 (7%)
As can be seen, over the year, the ratio deteriorated by 6% from 7% in 2013 to 1% in 2014.
Return on sales ratio. standard
The value of the standard value for this coefficient Kp>0. If the return on sales is less than zero, then it is worth seriously thinking about the effectiveness of enterprise management.
What level of sales profitability ratio is acceptable for Russia?
– mining – 26%
– Agriculture – 11%
– construction – 7%
– wholesale and retail – 8%
If you have a low value of the coefficient, then you should improve the efficiency of enterprise management by increasing the customer base, increasing the turnover of goods, reducing the cost of goods / services from subcontractors.
step economic efficiency financial, labor or material resource characterizes such relative indicator like profitability. It is expressed as a percentage and is widely used to evaluate the performance of a commercial enterprise. There are many types this concept. Any of them is the ratio of profit to the asset or resource under study.
The essence of the concept of profitability ratio
The profitability ratio of sales shows the business activity of the enterprise and reflects the efficiency of its work. Evaluation of the indicator allows you to determine how much money from the sale of products is the profit of the company. What matters is not how much product was sold, but how much net profit the company earned. With the help of the indicator, you can also find the share of cost in sales.
The profitability ratio of sales is analyzed, as a rule, in dynamics. An increase or decrease in an indicator indicates various economic phenomena.
If profitability increases:
- The increase in revenue occurs faster than the increase in costs (either increased sales volumes, or changed the assortment).
- Costs are declining faster than revenue is declining (the company has either raised product prices or changed the assortment structure).
- Revenue is growing, and costs are becoming smaller (prices have increased, assortment has changed, or cost rates have changed).
The first two situations are definitely favorable for the company. Further analysis is aimed at assessing the sustainability of this situation.
The second situation for the company cannot be called unambiguously favorable. After all, the profitability indicator has improved formally (revenue has decreased). To make decisions, analyze pricing, assortment.
If profitability declined:
- Costs are rising faster than revenue (due to inflation, price cuts, increased cost rates, or changes in product mix).
- The decrease in revenue is faster than the decrease in costs (sales fell).
- Revenues are getting smaller and costs are getting bigger (cost rates have increased, prices have gone down, or the assortment has changed).
The first trend is clearly unfavorable. An additional analysis of the causes is needed to correct the situation. The second situation indicates the desire of the company to reduce its sphere of influence in the market. When a third trend is found, pricing, assortment, and cost control systems need to be analyzed.
How to Calculate Return on Sales in Excel
The international designation of the indicator is ROS. The return on sales ratio is always calculated from the sales profit.
Traditional formula:
ROS = (Profit/Revenue) * 100%.
In specific situations, it may be necessary to calculate the share of gross, balance or other profit in revenue.
Gross return on sales (margin) formula:
(Gross Profit / Sales Proceeds) * 100%.
This indicator shows the level of "dirty" money (before all deductions) earned by the company from the sale of products. Formula elements are taken in monetary terms. Gross profit and revenue can be found in the income statement.
Information for calculation:
In the cells for calculating the gross margin, set the percentage format. We enter the formula:
Gross profit margin for 3 years is relatively stable. This means that the company carefully monitors the pricing procedure, monitors the product range.
Return on sales by operating income (EBIT):
(Operating profit / sales revenue) * 100%.
The indicator characterizes how much operating profit falls on the ruble of revenue.
((p. 2300 + p. 2330) / p. 2110) * 100%.
Data for calculation:
Calculate the operating profit margin - substitute the references to the required cells in the formula:
The formula for return on sales by net profit:
(Net profit / revenue) * 100%.
Net profitability shows how much net profit falls on the ruble of revenue. Both figures are taken from the income statement.
Let's show the profitability ratio of sales on the chart:
In 2015, the indicator is significantly reduced, which is regarded as an unfavorable phenomenon. Additional analysis of the assortment list, pricing and cost control systems is needed.
A value above zero is considered normal. A more specific range depends on the field of activity. Each company compares its profitability ratio of sales and normative value by industry. It is good if the calculated indicator practically does not differ from the inflation rate.
What does the concept of profitability mean? This is a relative value that reflects the performance indicator of the enterprise.
Calculation of the formula for profitability of sales.
Return on sales is a kind of indicator of pricing policy. Alternatively, considered as an indicator of cost control.
For example, in competing companies, the net return on sales and the formula display performance depending on the strategy and product line assortment.
These data are often used to evaluate operating efficiency. One caveat: given the same revenue, costs and relatively equal profit (before tax), the profitability of sales of similar companies can differ dramatically.
This may be due to the influence of the volume of interest payments on the size of the NP (net profit).
What is the meaning of the return on sales ratio? This indicator is characterizing in determining the efficiency of production activities.
That is, the level of profitability of sales and the formula that clearly displays the calculations actually shows the size of the NP (net profit) from the currency unit of sales.
That is, how much remains with the company after the cost of production, interest payments on existing loans and the corresponding tax deductions are covered. In other words, this indicator reflects the share of cost in sales.
KRP is determined primarily by the performance indicators of a certain reporting period. Important to know: CPI does not reflect the intended effect of long-term investments.
For example, an enterprise is switching to new technologies, as an option, plans to release new products which may require additional investment. In such cases, the CRP may decrease.
However, subject to the right strategy, this cannot be considered an indicator of the company's low efficiency, since the costs pay off rather quickly.
How to find the ROI formula?
RP (profitability of sales) is an indicator of pricing policy that reflects the ability of the company's management to keep potential costs under control.
For example, Gross Profit Margin - RP for marginal income.
The indicator is expressed as a percentage marginal income to the proceeds received from the sale of goods/services.
For example, Gross Profit Margi: how to calculate return on sales, formula:
GPM = (sales revenue, taking into account the deduction variable costs/ sales proceeds) x 100%
Find the answer in this article.
The formula for profitability of sales by balance sheet.
The profitability ratio, which reflects the share of profits in each earned currency unit, is actually profitability. The calculation is not complicated: the ratio of profit after tax (net profit) to sales (in monetary terms) for a certain period.
That is, the profitability of sales is determined by the formula:
PE / V;
where: NP - net profit, B - revenue.
The formula for the return on sales ratio.
KRP shows the share of NP (net profit) in the total sales of the company. This is the main indicator that is used most often to display the profitability of the enterprise.
Accordingly, the indicator should not be negative and correspond to the current inflation rate. Alternatively, for firms in advanced economies, CRP is correlated by industry.
The calculation is made as follows: return on sales - formula, example:
ROS = NI/NS
Decryption:
ROS: Return on Sales - the actual profitability of sales;
NI: Net Income - net income in a certain currency;
NS: Net Sales - revenue and net sales in general.
Important! KRP is the most important indicator, allowing to determine the profitability of the enterprise from each currency unit due to the sale of goods / services.
The profitability ratio of sales can be calculated both for individual items of goods / services, and in general. This is especially important for the analysis economic activity enterprises.
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