How is the return on sales ratio determined? Profitability of sales on net profit - formula. Normative value of return on sales

There are many ways to measure the performance of an organization. The main one is to calculate the profitability ratio. It is this indicator that should be taken into account first of all by the owner of the enterprise, taking into account that the profitability of a business is determined by the size of the result obtained in relation to the resources expended.

Based on the analysis of the data obtained during the calculation, we can conclude how the business is developing, what are the strengths and weaknesses of the enterprise at the moment, and what actions need to be taken to improve the efficiency of its work.

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One of the important indicators of the results of product sales is the profitability of sales, which reflects net income from company sales.

Definition and economic meaning

Before proceeding to the methods of calculating profitability, it is necessary to understand its economic meaning. Profitability shows how efficiently a business uses the resources involved.

In general, profitability is calculated in order to:

control profits;
track the dynamics of the business;
compare the results obtained with those of competitors;
identify which sales are profitable and which are unprofitable.

In relation to sales, the activity of an enterprise should be determined not only in terms of maximizing revenue, but also in terms of net profit from trade turnover. For this purpose, the profitability ratio of sales is calculated, which shows the efficiency of the sale of goods and allows you to determine the percentage of its cost in the total amount of revenue.

Return on sales, assets and equity

When analyzing the activities of an organization, various profitability ratios are usually considered not separately, but in aggregate.

At the same time, the following profitability ratios are the main indicators of the company's performance:

assets;
capital;
sales.

The indicator shows how much profit is received from the sources involved in production - monetary resources, capital and other resources. To determine the return on assets, you need to divide the net profit by the amount of assets in annual average terms (the sum of the values for the first and last day of the year, divided by 2) and multiply by 100%.

Return on assets values are compared on an annual basis to determine how much the actual value differs from the predicted value and what exactly influenced the deviation that took place.

Return on equity is calculated as the result of dividing by 100% the result of dividing net (after paying deductions to the budget) profit by the total value of fixed assets in average annual terms. This ratio reflects the income received from the use of capital assets in the production of goods.

The return on sales makes it clear what proportion of the company's revenue is profit, and is calculated in several ways (depending on the various subtypes of profit), which will be listed below. Based on data on the profitability of sales, the company makes decisions on pricing and the value of related households. cost activities.

Profit Margin Analysis

Having calculated the profitability of sales for several periods, it is possible to determine the dynamics of change attributable to a separate unit of production. Profit margin may vary depending on various factors, which will be considered in the factor analysis.

Its increase occurs in the following cases:

with an increase in revenue, accompanied by a decrease in costs;
while reducing revenue and expenses, when the latter are reduced faster;
with higher revenues and slower increases in costs.

The decrease in the indicator occurs under the following circumstances:

profits and expenses grow at the same time, but expenses increase faster;
revenue and expenses are declining, but the rate of decrease in revenue is greater;
expenses go up and revenue goes down.

Other factors also influence the profit margin: inflation, changes in demand for products, and competing firms.

Calculation formulas

Return on sales is determined by three different methods:

by using the amount of net profit in the calculation;
through a preliminary calculation of gross profit;
based on operating income.

By net profit

The formula for determining profitability in this case is as follows:

R = [net profit]/[revenue]*100%

The value, as a rule, is calculated over several periods - only then can an objective assessment of the company's performance and its payback be obtained.

Based on sharp changes in the ratio or, conversely, its stability, you can get a general idea of the company:

how competently decisions are made;
whether the attracted resources are used effectively;
what are the successes and problems of the organization.

By gross profit

In order to determine the gross profit, you need to subtract the cost of production from the revenue.

The formula for calculating the gross profit ratio is as follows:

R = [gross margin]/[revenue]*100%

By operating profit

To calculate the profitability of sales for the company's main line of business, you first need to determine the operating profit by subtracting direct and operating expenses from net profit.

Operating profit margin formula:

R = [operating profit]/[revenue]*100%.

By balance

All the necessary values for calculating the profitability of sales according to the above formulas are taken from the balance sheet and Form 2, which reflects the financial results of the company.

In this case, the formula for calculating the coefficient on the balance will depend on what type of profit is determined by profitability:

Coefficient calculation example

Initial data:

sales revenue for 2020 amounted to 21 million rubles;
net profit for 2020 - 6.2 million rubles;
sales revenue for 2020 - 24.4 million rubles;
net profit for 2020 - 6.46 million rubles;

To determine the change in sales profitability in 2020, you must first calculate the value of profitability in 2020.

Plugging the values into the formula above gives the following result:

R2015 = 6.2: 21 = 0.295 or 29.5%

R2016 = 6.46: 24.4 = 0.265 or 26.5%

By subtracting one coefficient from the other, you can get the percentage change in profitability:

R = R2016 - R2015 = 26.5 - 29.5 = -3%

Thus, this example shows that in 2020 the decrease in profitability was significant - the indicator decreased by 3%.

Normative value at the enterprise

There is no specific standard for the return on sales ratio. Any value above zero is a good indicator. If Krp<0, то руководству стоит всерьез задуматься об эффективности управления компанией.

If we proceed from the statistical data available for various sectors of the national economy, then we can focus on the following average values for Russia:

With a low or negative coefficient, the management of the organization must change the methods of managing the enterprise, increasing the efficiency of its work by expanding the customer database, increasing the rate of asset turnover and reducing the purchase cost of raw materials, goods or services from contractors.

The dynamics of change and its impact

Thanks to the analysis of profitability of sales, you can get an accurate and objective assessment of the current state of affairs of the company. Considering that this coefficient reflects the most important result of the enterprise's activity - the sale of products, the development trend of the organization can be determined depending on the increase or decrease in the coefficient.

Increase in indicator

The increase in the return on sales ratio in general is a good indicator, but depending on its causes, it can have a different shade.

A favorable trend is when revenue growth outpaces cost growth. This means that the company manages to contain the increase in variable costs, which in this case increase non-linearly.

If the coefficient increases due to the fact that both costs and revenues are simultaneously reduced, and the latter decreases more slowly, then this trend can no longer be unequivocally called favorable, although the coefficient formally increased. This situation requires a deeper analysis in order to be able to determine why the revenue has decreased.

Finally, the most optimal scenario is to increase revenue while reducing costs. In this case, the company should analyze why this is happening, and in the future try to stick to this course of events.

Decrease in indicator

The decrease in the profitability of sales is negative in any case, regardless of the nature of changes in revenue and costs.

To correct the current trend, the company must take appropriate actions (depending on the reasons that led to the decrease in the indicator):

revise pricing and marketing policies;
change the assortment of goods;
reduce costs.

Factor analysis

In order to understand why there was an increase or decrease in the profitability ratio of sales, factor analysis is used, with which you can find out the strengths and weaknesses of the company's activities and predict the company's further development strategy.

The increase in revenue while reducing costs is due to the following reasons:

sales growth;
change in the range of goods;
reduced cost control.

A decrease in revenue at a lower rate of decrease in costs may occur due to rising prices for goods and changes in the assortment.

The following factors influence the simultaneous growth of revenue and expenses at a lower rate of the latter:

cost reduction;
price increase;

The reasons for the growth of revenue and expenses that increase faster, as a rule, are the following:

increase in the cost of goods;
high price level;
structural change in the range.

It is obtained by dividing the profit from the sale of products by the amount of the proceeds received. The initial data for its calculation is the balance sheet.

It is calculated in the FinEcAnalysis program in the Profitability Analysis section as Profitability of sales.

Profitability of sales - what shows

Shows how much profit the company receives from each ruble of products sold.

Profitability of sales - formula

The general formula for calculating the coefficient:

Calculation formula according to the old balance sheet:

Krp =	p.050	*100%
	p.010

where p. 050 and p. 010 of the income statement (form No. 2).

Calculation formula according to the new balance sheet:

Return on sales - value

It is used as the main indicator for evaluating the financial performance of companies with relatively small amounts of fixed assets and equity. Evaluation of profitability of sales provides an opportunity to objectively look at the state of affairs.

The indicator of profitability of sales characterizes the main aspect of the company's work - the sale of the main products.

Profitability of sales - scheme

1. Increase in the indicator.

a) Revenue growth is outpacing cost growth. Possible reasons:

sales growth,
change in sales mix.

With an increase in the number of products sold in physical terms, revenue increases faster than costs as a result of production leverage.

The components of the cost of production are variable and fixed costs. Changing the cost structure can greatly affect the amount of profit. Investing in fixed assets is accompanied by an increase in fixed costs and, theoretically, a decrease in variable costs. At the same time, the dependence is non-linear, so finding the optimal combination of fixed and variable costs is not easy.

In addition to simply raising the price of its products, a company can increase revenue by changing its product mix. This development trend of the enterprise is favorable.

b) The rate of cost reduction is outpacing the rate of revenue decline. Possible reasons:

rise in prices for products (works, services),
changing the structure of the assortment.

In this case, there is a formal improvement in the profitability indicator, but the volume of revenue decreases, the trend cannot be called unambiguously favorable. For correctly drawn conclusions, they analyze the pricing policy and the assortment policy of the enterprise.

c) Revenue increases, costs decrease. Possible reasons:

price increase,
change in the range of sales,
change in cost rates.

This trend is favorable, and further analysis is carried out to assess the sustainability of this position of the company.

2. Decrease in the indicator.

a) Cost growth is outpacing revenue growth. Possible reasons:

inflationary growth in costs outstrips revenue,
price reduction,
changing the structure of the sales assortment,
increase in cost rates.

This is an unfavorable trend. To remedy the situation, they analyze pricing issues at the enterprise, assortment policy, and a cost control system.

b) The rate of revenue decline outpaces the rate of cost reduction. Possible reasons:

reduction in sales.

This situation is common when the company reduces the activity in the market. Revenue declines faster than costs as a result of operating leverage. An analysis of the company's marketing policy should be made.

c) Revenue goes down, costs go up. Possible reasons:

price reduction,
increase in cost rates,
change in the structure of the sales assortment.

It is necessary to analyze pricing, cost control systems, assortment policy.

Under normal (stable) market conditions, the dynamics of revenue changes faster than costs only under the influence of production leverage. The remaining cases are associated either with changes in the external and internal conditions of the enterprise's functioning (inflation, competition, demand, cost structure), or with an inefficient system of accounting and control in production.

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Synonyms

More found about return on sales

Analysis of the profitability of the main activity of a trade organization It characterizes the efficiency of entrepreneurial activity How much profit an organization has from one ruble of sales Profitability of sales is defined as the ratio of profit from sales or net profit to the amount received
Analysis of the current level, features and trends of profitability indicators of Russian joint-stock companies
Return on sales based on profit before tax Return on sales Return on sales based on profit before tax - which shows Return on sales based on profit before tax
Profitability of sales ratio Synonyms profitability of sales profitability of sold products profitability of sales based on profit before tax
Evaluation of the influence of factors on profitability indicators Or if you try on the method of reducing the numerator and denominator divided by revenue, then you can use the following factorial model profitability of sales multiplied by the turnover ratio of current assets Profit from sales multiplied by the turnover ratio
Total return on sales Total return on sales Total return on sales - definition Total return on sales - a ratio equal to the ratio of book profit
Low profitability threshold and on-site inspections Profitability indicators can be divided into two groups: return on sales return on assets Return on sales is a profitability ratio that shows the share of profit in each
Profitability of sold products Synonyms profitability of sales profitability of sales ratio profitability of sales in terms of profit before tax is calculated in the FinEcAnalysis program in the Profitability analysis block
Analysis of financial assets according to NROSEBIFA consolidated financial statements - net profit sales at profit before interest and before income expenses from financial assets
Formation of a scoring model for assessing the creditworthiness of a corporate borrower EBIT Interest 0.0790 4 > 1.5 4 1.3-1.5 3 1-1.3 2< 1 0 Рентабельность продаж ROS 0,1256 6 > 0,025 6 0,02-0,025 5 0,015-0,02 3 < 0,015 0
Pre-audit analysis as a tool for predicting field tax audit of penal institutions and its improvement Profitability of sales % Profitability of assets % Profitability of sales % Profitability of assets % Garment production 7.1 3.5
Factor analysis of the formation and use of the company's profit Profitability of sold products profitability of sales is calculated by the formula
Factor analysis of the financial performance of agricultural producers The influence of factors on the profitability of sales or the profitability of the main activity can be assessed by the method of chain substitutions Substitutions Factor rub Product profitability
Features of the financial policy of companies in a crisis ROS - net profitability of sales in terms of profit before interest kic - turnover ratio of invested capital In the index
Anti-crisis management of the financial and economic stability of an industrial enterprise
Key Aspects of Profit Management of an Organization net assets return on capital of total equity debt return on sales return on expenses
Forecast balance taking into account current trends, forecast volumes and profitability of sales, changes in non-current assets FinEkAnalysis you can quickly build a forecast balance taking into account existing trends in forecast volumes and profitability of sales changes in non-current assets An example of a report automatically generated by the FinEkAnalysis program

To assess the performance of any enterprise, it is necessary to conduct regular analysis based on the results of activities for a certain period of time. In this article, we will talk about the formulas for profitability of sales and assess the effectiveness of an enterprise according to these indicators.

Definition and explanations

Return on sales is important economic indicator for any enterprise. In a general sense, the profitability of sales shows what percentage of the net profit the organization receives from the proceeds, or rather, what share of the income is contained in one ruble from the products sold. In fact, the level of return on sales, expressed as a percentage, makes it possible to assess how much revenue covers expenses and how much income a company receives from the sale of products or services.

Many aspiring entrepreneurs are wondering if it is necessary to calculate the profitability of sales at all and what does it give? Profitability of sales is an indicator of the success of the financial activity of the enterprise, especially for companies with a small volume of production.

With the help of various formulas and indicators of return on sales, you can clearly see how efficiently the capital and resources of the enterprise are used, whether the market strategy is built correctly and price policy. The profitability of sales volume characterizes the effectiveness of the main aspect of the enterprise's activity - the sale of the main products.

For example, if when calculating the profitability of sales of a company, an indicator of 25% was obtained, this means that the company received 25 kopecks of profit from each ruble of revenue. An equally indicative tool is a comparative analysis of indicators for various reporting periods. If the level of profitability of sales has fallen, this means that the growth rate of costs outpaces the growth rate of revenue. That is, production costs increased, but revenue decreased or remained at the same level. We need to look for solutions:

increase sales volume;
change pricing policy;
reduce the cost of production;
change or expand the range;
look for new ways to sell products and markets;
increase demand (advertising, marketing).

That is, a regular analysis of the profitability of profit from sales makes it possible to assess the degree of financial growth or decline of the company. A more detailed analysis reveals the strengths and weaknesses production and financial policy of the enterprise and, based on the analysis, create an effective strategy for increasing profitability.

If a company produces several types of products, sells different groups of goods, or offers different kinds services, you can calculate the return on sales profit for each separate category. According to the results of calculations, the type of product that is most beneficial for the enterprise is determined.

Return on sales formula

Several formulas are used to determine the profitability of sales volume. Consider the two most commonly used:

the classic formula for return on sales from profit from sales;
algorithm for calculating the profitability of sales by gross profit.

Where applicable

The results of calculating the profitability of sales are used for various purposes:

for comparative analysis work of the enterprise for a certain period;
for pricing for one of the types of products;
to study the demand for the range.

An example of the application of profitability in the table.

After a comparative analysis of the activities of the enterprise with these indicators, we can draw the following conclusions:

In 2018, the profitability ratio decreased by 3.6%.
Profit from sales of products decreased by 23%.
Revenue also fell, but not as much as other indicators.

Conclusion - the drop in profitability of sales and income of the enterprise is due to an increase in the cost of production. Once the cost has increased, then you need to increase the price of a unit of goods or increase sales. Depending on the specific activity of the company, it may be worth exploring opportunities to reduce production costs or management costs.

Rates of return on sales

There are no precisely established indicators of profitability of sales, since much is determined by the field of activity, size and stage of development of the organization. in various industries and economic activity there are separate average indicators that indicate the effectiveness of the organization.

In general, in economic activity it is believed that the profitability of sales from 1 to 5% is low, from 5 to 20% is medium and stable, from 20-30% is a highly profitable indicator. Return on sales above 30% equates to a super efficient and profitable business activity.

The indicator of profitability is important to distinguish from revenue. If revenue simply reflects the total turnover of the company (it is calculated in rubles), then profitability is the efficiency of its activities (expressed as a percentage). Any business that brought profit at the end of the period under review can be called profitable. If there is a loss, 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) \u003d net profit from sales (services) / cost * 100%.
Profitability of sales (services) = net profit / revenue * 100%.

Let's say a company sells women's clothing. She bought goods in the amount of 12 million rubles, sold - 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 - 11/12*100=91%.
The profitability of services is calculated in a similar way, in this case, the cost price does not take into account the purchase price of the goods, but, for example, the cost of purchasing tools, remuneration of workers, etc.

The assessment takes into account the net profit and turnover of the company. If we take c as a basis, then it will be equal to = 11/28 * 100% = 39.2%. Using this formula, it is desirable 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 positions in the assortment, as well as those that need to be worked on to increase the profitability.

Acceptable level of profitability by industry

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

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, the average sales by industry in 2013 were as follows:
- extraction of minerals - 26.3%;
- chemical production - 18.3%;
- textile production - 2.8%;
- Agriculture - 11.7%;
- construction - 6.7%;
- wholesale and retail trade - 8.2%;
- financial activities- 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 lagging behind your competitors in terms of business efficiency, you need to work on increasing the level of profitability. This task can be achieved through a competent marketing policy aimed at increasing client base and ensuring an increase in the turnover of goods, as well as by obtaining more favorable offers from suppliers of goods (or subcontractors).

The main purpose of any commercial enterprise is an Receiving a profit. Working for the sake of simply increasing revenue can only suit a part of the staff receiving wages from the volume of sales.

For shareholders or founders of the enterprise, the managers hired by them, such a situation will be unacceptable. They will require the necessary changes to be made to improve the financial situation and generate a net profit.

Therefore, financial managers are constantly analyzing and seeking additional resources to increase the profitability of sales.

Profitability of sales calculated as the ratio of profit to net revenue for a certain period. This is the main indicator for assessing the effectiveness of the enterprise.

Formulas for calculation

Return on sales is calculated using various formulas that differ in the cost indicators used in the calculation.

The simplest, but not sufficiently objective indicator of the ratio of gross profit to revenue:

GRM= VP/TR,

GRM - return on sales by gross margin,

VP - gross profit,

TR - net revenue.

For revenue, the cost of sales is subtracted.

According to the Profit and Loss Statement (form No. 2), adopted in Russian legislation, to calculate the profitability of sales by gross profit, this indicator (line 2100 of the report) must be divided by the revenue indicator (line 2110 of the report).

Example. For the first quarter of 2015, the revenue of Temp LLC amounted to 100 million rubles. For the same period in 2014 - 80 million rubles. Gross profit in the first quarter of 2015 amounted to 25 million rubles, and in the first quarter of 2014 - 22 million rubles.

Return on sales in terms of gross profit for the first three months of 2015 amounted to

25 million rubles / 100 million rubles = 0.25,

and for the three months of 2014 22 million rubles / 80 million rubles = 0.275.

The results of the calculation indicate that with an absolute increase in gross profit by 3 million rubles (25-22) in the first quarter of 2015 compared to the same period last year, the gross profit margin decreased by 0.025 (0.25-0.275).

The indicator of profitability of sales in terms of gross profit is not an objective characteristic of the enterprise's activities for the reason that it does not include other costs in the calculation, without which it is impossible to do: business expenses(line 2210 of the report) andmanagement expenses(line 2220 of the report).

According to the profitability of sales in terms of gross profit, one can assess how successfully the services directly related to the purchase of goods, raw materials, materials and their sale worked.

The profitability ratio of sales by gross profit reflects the average level of the total amount of markups, allowances and discounts for the reporting period.

For a more accurate assessment of the effectiveness of the enterprise, the formula for return on sales is more often used:

RP = Profit from sales (line 2200 of the report) / revenue (line 2110 of the report).

When calculating profits using this formula, management and commercial expenses are already taken into account, therefore, for many enterprises, the RP coefficient will reflect the real state of affairs.

Continuation of the example. In the first quarter of 2015, commercial expenses of Temp LLC amounted to 4 million rubles, management expenses - 2 million rubles. Last year, for the first three months, commercial expenses amounted to 3.5 million rubles, management expenses - 1.5 million rubles.

Sales profit for the first quarter of 2015 amounted to 19 million rubles, in the first quarter of 2014 - 17 million rubles.

Return on sales for the first three months of 2015 amounted to:

19 million rubles / 100 million rubles = 0.19;

and for the three months of 2015 17 million rubles / 80 million rubles = 0.2125.

With an absolute increase in profit by 2 million rubles, the profitability of sales decreased by 0.0225

V international practice It is customary to calculate profitability on profit before interest, taxes and (EBITDA) expenses:

EBITDA margin = EBITDA / Sales revenue

However, to obtain an absolutely complete picture of the financial and economic activities of the enterprise, it is necessary to take into account other income and expenses incurred in the reporting period:

income from investments in other enterprises, organizations;
received interest on investments;
other income;
interest expenses on commercial credits and other borrowings;
payment of current income tax;
other expenses;

The formula for return on sales by net profit

is the final assessment and analysis of the enterprise.

Additional formulas for investors

Participants or shareholders of the enterprise are primarily interested in the question of how much they will receive return on invested capital. For their needs and convenience, indicators are also calculated return on total capital according to the formula.