Calculation of the profitability of sales and its analysis
The concept of profitability of sales
Profitability of sales is an indicator that reflects the necessary 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 the development of business;
- for comparison with the profit from sales of competing companies;
- to determine profitable and unprofitable sales, etc.
To more clearly understand what is the net profit, 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) - profitability of sales of the enterprise,
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 learn profitability, you need to divide the net profit by all the proceeds in general. And then the received indicator will be perfectly visible.
Another well-known formula for calculating gross profit to net sales, taking into account the value-added tax is:
In this case, net profit is the main composite gross profit of GP (with 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.
Proceeding from the fact that there is nothing more important than constantly increasing your income, the calculation of profitability should be regularly carried out and all the results obtained must be fixed.