Calculation of profitability of sales and its analysis
The concept of profitability of sales
Return on sales is an indicator that reflects the required share of net profit in the total sales of the organization.
Without profitability, it is difficult to understand how well the company operates, whether it is profitable or unprofitable, effectively or not, how it will develop in the future, and that the moment should be taken to increase income while reducing unnecessary costs. The calculation of profitability helps to identify the effectiveness of the organization's activities in sufficient detail.
Calculation of profitability is made:
- to monitor the profit of the enterprise;
- to monitor business development;
- for comparison with the profit from sales of competing companies;
- to determine profitable and unprofitable sales, etc.
To understand more clearly what the net profit is, and how to withdraw it as soon as possible, it is recommended to turn to a fairly common formula for finding profitability.
Formulas for analyzing the profitability of sales
It is important to understand that it is not necessary to have sverhsposobnostyami mathematical knowledge to calculate the formula and to know the profitability of your company. It is very simple and is as follows:
where ROS (from English Return on Sales) is the profitability of the company's sales,
NI (from English Net Income) - net profit in a specific currency,
NS (from English Net Sales) - revenue or net from all sales of the organization.
To find out profitability, you need to divide the net profit by all revenue as a whole. And then the resulting figure will be perfectly visible.
Another fairly well-known formula for calculating the gross margin to net sales, including value added tax, is:
In this case, the net profit is the main composite gross margin of the GP (from the English Gross Profit), which ultimately gives the desired result.
Results of the analysis of profitability of sales
Regularly making the cost-benefit analysis, can reveal a lot of necessary and very useful information. In particular, to understand the development of the production company, to identify its effectiveness, to understand you need to tweak and what to leave unchanged.
Given that there is nothing more important than constantly increasing your income, the calculation of profitability should be regularly carried out and all results should be recorded.