The profitability of production shows. To help the entrepreneur: how to calculate the profitability of products. Profitability of products sold - diagram
They are obtained by dividing the profit from the sale of products by the amount of revenue received. The initial data for its calculation is the balance sheet.
It is calculated in the FinEkAnalysis program in the Profitability Analysis block as Return on Sales.
Profitability of products sold - what it shows
Shows how much profit the company receives from each ruble of products sold.
Profitability of products sold - formula
General formula for calculating the coefficient:
Calculation formula based on the old balance sheet data:
| K ppp = | page 050 | *100% |
| p.010 |
where line 050 and line 010 of the profit and loss report (form No. 2).
Calculation formula based on the new balance sheet:
Return on products sold - value
It is used as the main indicator for assessing the financial performance of companies with relatively small amounts of fixed assets and equity capital. Assessing the profitability of sales makes it possible to objectively look at the state of affairs.
The return on sales indicator characterizes the main aspect of the company's work - the sale of main products.
Profitability of products sold - diagram
1. Increasing the indicator.
a) Revenue growth rates outpace cost growth rates. Possible reasons:
- increase in sales volumes,
- 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 product cost are variable and fixed costs. Changing the cost structure can greatly affect profit margins. Investing in fixed assets is accompanied by an increase in fixed costs and, theoretically, a decrease in variable costs. Moreover, the relationship is nonlinear, so finding the optimal combination of fixed and variable costs is not easy.
In addition to simply raising prices for its products, a company can increase revenue by changing its product mix. This trend in the development of the enterprise is favorable.
b) The rate of cost reduction is faster than the rate of revenue decline. Possible reasons:
- increase in prices for products (works, services),
- change in the assortment structure.
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. To correctly draw conclusions, analyze the pricing policy and assortment policy of the enterprise.
c) Revenue increases, costs decrease. Possible reasons:
- price increase,
- change in sales mix,
- change in cost standards.
This trend is favorable, and further analysis is carried out to assess the sustainability of this position of the company.
2. Decrease in indicator.
a) The growth rate of costs outpaces the growth rate of revenue. Possible reasons:
- inflationary growth in costs outpaces revenues,
- price reduction,
- change in the structure of the sales range,
- increase in cost standards.
This is an unfavorable trend. To correct the situation, they analyze the issues of pricing at the enterprise, assortment policy, and cost control system.
b) The rate of revenue decline is faster than the rate of cost reduction. Possible reasons:
- reduction in sales volumes.
This situation is common when an enterprise reduces its activities 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 decreases, costs increase. Possible reasons:
- price reduction,
- increase in cost standards,
- changing the structure of the sales range.
An analysis of pricing, cost control systems, and assortment policy is required.
In normal (stable) market conditions, revenue dynamics change 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 ineffective system of accounting and control in production.
Was the page helpful?
Synonyms
More found about profitability of products sold
- Patterns and trends in the financial results of small and medium-sized enterprises
The article discusses the results of the analysis of such indicators of the activity of micro-enterprises of small and medium-sized enterprises as the balanced financial results of the enterprises, the share of profitable and unprofitable enterprises, the profitability of manufactured and sold products, the existing levels of profit and loss per unit, respectively - On the standard values of coefficients when forming a rating assessment of the financial and economic condition of an enterprise
Vp and profitability of sold products Rp for the period 2005-2012 according to the Russian statistical daily are presented in - The influence of individual elements of accounting policies on reporting items and financial performance indicators
Profitability indicators - profitability of products sold Ррп Shows the effectiveness of the costs incurred by the enterprise for the production and sale of products - - Analysis of consolidated and segment reporting: methodological aspect
In the process of analysis, an assessment is made of financial stability, debt capital concentration ratio, solvency, maturity of obligations, efficiency of current activities, return on products sold and return on sales, intensity, asset turnover ratio and efficiency, return on assets and profitability. - Profitability: To be managed, it must be measured correctly.
The profitability of all commercial products is determined as the ratio of profit per commodity output to the cost of commercial products. The profitability of all products sold is calculated as the ratio of profit from sales g to the total cost of products sold. - Methodology for managing the financial results of an enterprise
Indicators of product profitability reflect the efficiency of current costs, in contrast to the overall profitability indicator characterizing the efficiency of advanced capital, and are calculated as the ratio of profit from product sales to the total cost of products sold. The profitability of a particular type of product depends on the prices of raw materials, the quality of the product, and labor productivity. - Multi-criteria approach to business risk analysis
LLC Kuban The profitability of sales in 2013 compared to 2011 increased by 0.863 points and compared to 2012 - decreased by 3.308 points The profitability of products sold has a similar development trend in the period under study In 2013, this indicator - Factor analysis of the formation and use of company profits
The decrease in the ratio can be explained by a significant increase in the amount of equity capital in 2016; the growth rate of profit is lower than the growth rate of the enterprise’s equity capital, due to which the return on capital indicator in 2016 decreased the last year’s figure by 5 kopecks. The main reserves for profit growth... The main reserves for profit growth of the organization are a decrease cost of goods sold increasing the volume of its sales improving the quality of products selling them on more profitable markets - Working capital management policy in the holding
Profit margin on sales PMOS is the ratio of net profit to revenue - Gross profit management of a modern manufacturing enterprise as an integral condition for corporate profit management
Vph -Vpo Iv In the second case, the difference between the basic level of profitability calculated based on the actual volume and range of products sold and its basic level is multiplied - Analysis of the capital structure and profitability of leading Russian oil and gas enterprises
Return on sales allows you to find out how much profit falls on a unit of sold products. Return on equity capital characterizes the efficiency of using equity capital and influences the level of - Features of factor analysis of performance indicators of an economic entity
By successively replacing the planned base level of each factor indicator with the actual one and comparing the calculation result before and after replacing each factor, it is possible to determine the change in the level of profitability due to the volume of products sold qtotal structure UDi prices p specific variable costs - The associated effect of operational and financial leverage in managing the financial condition of an organization
This indicator is needed to find out how much products need to be sold in order to fully cover its costs. For JSC Tander, the profitability threshold in the reporting year - Profitability of gross output
Profitability of gross output shows how much gross profit is in each ruble of sold products, works, services Profitability of gross output - formula General formula for calculating the coefficient Krvp Gross - Assessing the efficiency of using financial resources of organizations in the regional agricultural sector
This indicates an increase in the efficiency of using equity capital. Return on sales is calculated by dividing gross profit by the volume of products sold. In 2011, this - Gross Margin
Gross profitability shows how much gross profit is in each ruble of sold products, works, services Gross profitability - formula General formula for calculating the coefficient KVR Gross profit - Analysis of financial results (based on materials from Ganimed SB LLC)
Calculation of the return on sales indicator showed that in 2013, per unit of products sold by Ganimed SB LLC there were - Profit and profitability indicators
In this regard, the most important indicator reflecting the performance of an enterprise is profitability, which characterizes the profitability of the activity relative to the funds advanced or the volume of turnover for products sold. To quickly calculate profitability and profit indicators, use the financial analysis program FinEkAnalysis Example. - Multilevel factor analysis of agricultural producer business activity indicators
B - sales revenue Return on sales shows how much profit falls on a unit of sold products Its economic meaning lies in - Such different goodwill: testing various methods for assessing a company’s goodwill and interpreting the results obtained
Qf - cost of sales of goods, works, services Rq - industry average coefficient of profitability of product sales Rg - coefficient
Instructions
Product profitability can be in three options: profitability of commercial products, sold products and individual products. The profitability of commercial products can be determined by the cost indicator per monetary unit of commercial products or its reciprocal value.
Formula:
(T-C)/ T*100, where T are enterprises at wholesale prices; C is the total cost of marketable products.
There is a classic method for determining the profitability of commercial products:
(T-C)/ C*100.
Profitability of products sold is the ratio of profit from the sale of manufactured products to its full cost.
Product profitability is the ratio of profit per unit of manufactured product to the cost of this product. Profit on a product can be derived from the difference between the wholesale price of the product and the cost price.
Using product profitability, the very efficiency of production of specific types of products is assessed, while production profitability, or overall, balance sheet profitability, generally serves as an indicator of the efficiency of the company (industry).
The profitability of products (services or work) can be determined for the organization as a whole or for individual types of products. Using product profitability, you can determine whether it is possible to reduce costs for individual types. You can also calculate planned profitability if the company wants to introduce a new product.
In order to find product profitability as an indicator of the effectiveness of all costs of production or sales, you should use the following formula:
Profit from sales of products: at the full cost of production * 100% = Profitability.
Video on the topic
Sources:
- profitability of certain types of products
- Cost return
Profitability is an indicator of the profitability of an enterprise. Also, profitability implies the use of certain means by which an organization can cover its own costs with income and make a profit.
Instructions
Analyze the company's profitability based on its activities for the year and then quarterly. Compare the actual profitability indicators (products, property, equity) for the required period with the calculated (planned) indicators and with the values for previous periods. In this case, bring the values for previous periods into a comparable form using a price index.
Study the influence of internal and external factors of production on profitability indicators. Then determine the reserves for increasing profitability indicators. In turn, to ensure an increase in profitability, the rate must be greater than the growth rate of materials used or operating results, that is, income from sales of goods.
Analyze the stability of the enterprise, which is characterized by many different indicators that reflect the stability of its finances and the optimal level. The purpose of financial analysis is to assess the state of the company in the previous period, assess its current state and assess the future position of the company.
Conduct the financial analysis itself in several stages: determine the approach or direction of this analysis, evaluate the quality of the initial information and perform the analysis using basic methods. These methods include: horizontal - comparison of each individual balance sheet item or other reporting document with data for the previous period; vertical - the system of all components of the indicator, as well as the influence of each position as a whole on the result itself; trend - analysis of an indicator made over several periods of time and determination of a trend using mathematical processing of a certain series of dynamics.
Sources:
- Profit analysis technique
Tip 3: How to analyze production profitability
Profitability is an indicator that determines the level of profitability of a business. Profitability reflects the final results of financial and economic activities, since the value of this coefficient characterizes the ratio of the effect to cash or used resources.
Instructions
Determine the profit from product sales for the analyzed period. It is usually calculated based on the results of work for each quarter and year.
Calculate the cost of production and sales of products. This data is reflected in the organization’s “Profit and Loss Statement.”
Calculate the production profitability indicator using the formula – P = P / (Zp + Zp), where:
- P - profit from sales of products,
- Salary - production costs,
- Зр - costs of selling products.
The resulting coefficient shows how much profit the company makes from each ruble spent on production and sales.
The desired result of every enterprise is profit. However, profit in absolute terms (in rubles, thousands or millions) is just a number on the income statement. For the owner or investor, it is, of course, important, but not informative enough. In order to understand how hard this profit was obtained, there are relative indicators of profitability, called profitability indicators. One of them is production profitability.
Profitability of production correlates the amount of profit received with the amount of funds that made it possible to obtain it, shows the amount of profit per 1 ruble. spent production assets. The fewer funds are used to obtain a certain amount of profit, the higher the profitability of production, and therefore the higher the efficiency of the company.
Read our articles about other profitability indicators:
- “Determining return on assets (balance sheet formula)”
- “Determining return on equity (formula)”
Production profitability formula
Profitability of production is the ratio of the total amount of profit (balance sheet profit) to the average annual cost of fixed and working capital.
The formula for calculating production profitability is as follows:
Rproduct = Pr / (OF + ObS) × 100,
Rproduct—production profitability;
PF - average cost of fixed production assets for the billing period;
OBC is the average cost of working capital.
Where to get the numbers for calculations
Information for calculating production profitability is taken partly from financial statements and partly from accounting analytics.
Thus, we obtain the amount of balance sheet profit from the statement of financial results - from line 2300 “Profit (loss) before tax” of Form 2.
Read more about this report in the article “Filling out Form 2 of the balance sheet (sample)” .
Data for the denominator of the fraction will most likely have to be looked for in analytical accounting registers. It is unlikely to be possible to take figures from the balance sheet. For example, because it reflects aggregate data on the enterprise’s fixed assets, and to calculate the profitability of production, the balances of production assets are needed. This means that detailed information about the OS is needed.
Production profitability, product profitability and sales profitability - is there a difference?
Of course there is. These are separate types of profitability, three independent indicators. It has already been said above that production profitability shows the share of profit per 1 ruble. spent production assets.
In turn, product profitability shows the amount of profit per 1 ruble. cost (full or production). It is calculated using the formula:
Rpr = Pr / Ss × 100,
where: Rpr - product profitability;
Pr - profit;
CC - cost price.
As for the profitability of sales (it is also called total profitability), it carries information about the amount of profit per 1 ruble. revenue. It is calculated using the formula:
ROS = Pr / Op × 100%,
where: ROS - return on sales;
Pr - profit;
Op - sales volume or revenue.
As you can see, the indicators really differ both in meaning and in calculation. And they should not be confused.
Profitability- a relative indicator of economic efficiency. The profitability of an enterprise comprehensively reflects the degree of efficiency in the use of material, labor, monetary and other resources. The profitability ratio is calculated as the ratio of profit to the assets or flows that form it.
In a general sense, product profitability implies that the production and sale of a given product brings profit to the enterprise. Unprofitable production is production that does not make a profit. Negative profitability is an unprofitable activity. The level of profitability is determined using relative indicators - coefficients. Profitability indicators can be divided into two groups (two types): and return on assets.
Return on sales
Return on sales is a profitability ratio that shows the share of profit in each ruble earned. It is usually calculated as the ratio of net profit (profit after tax) for a certain period to the sales volume expressed in cash for the same period. Profitability formula:
Return on Sales = Net Profit / Revenue
Return on sales is an indicator of a company's pricing policy and its ability to control costs. Differences in competitive strategies and product lines cause significant variation in return on sales values across companies. Often used to evaluate the operating efficiency of companies.
In addition to the above calculation (return on sales by gross profit; English: Gross Margin, Sales margin, Operating Margin), there are other variations in calculating the return on sales indicator, but to calculate all of them, only data on the profits (losses) of the organization are used (i.e. e. data from Form No. 2 “Profit and Loss Statement”, without affecting the Balance Sheet data). For example:
- return on sales (the amount of profit from sales before interest and taxes in each ruble of revenue).
- return on sales based on net profit (net profit per ruble of sales revenue (English: Profit Margin, Net Profit Margin).
- profit from sales per ruble invested in the production and sale of products (works, services).
Return on assets
Unlike indicators of return on sales, return on assets is calculated as the ratio of profit to the average value of the enterprise's assets. Those. the indicator from Form No. 2 “Income Statement” is divided by the average value of the indicator from Form No. 1 “Balance Sheet”. Return on assets, like return on equity, can be considered as one of the indicators of return on investment.
Return on assets (ROA) is a relative indicator of operational efficiency, the quotient of dividing the net profit received for the period by the total assets of the organization for the period. One of the financial ratios is included in the group of profitability ratios. Shows the ability of a company's assets to generate profit.
Return on assets is an indicator of the profitability and efficiency of a company's operations, cleared of the influence of the volume of borrowed funds. It is used to compare enterprises in the same industry and is calculated using the formula:
Where:
Ra—return on assets;
P—profit for the period;
A is the average value of assets for the period.
In addition, the following indicators of the efficiency of using certain types of assets (capital) have become widespread:
Return on equity (ROE) is a relative indicator of operational efficiency, the quotient of dividing the net profit received for the period by the organization’s equity capital. Shows the return on shareholder investment in a given enterprise.
The required level of profitability is achieved through organizational, technical and economic measures. Increasing profitability means getting greater financial results with lower costs. The profitability threshold is the point separating profitable production from unprofitable ones, the point at which the enterprise’s income covers its variable and semi-fixed costs.
Let's consider the return on sales ratio(ROS). This indicator reflects the efficiency of the enterprise and shows the share (as a percentage) of net profit in the total revenue of the enterprise. In Western sources, the return on sales ratio is called ROS ( return on sales). Below I will consider the formula for calculating this coefficient, give an example of its calculation for a domestic enterprise, describe the standard and its economic meaning.
Sales profitability. Economic meaning of the indicator
It is advisable to begin studying any coefficient with its economic meaning. Why is this coefficient needed? It reflects the business activity of an enterprise and determines how efficiently the enterprise operates. The return on sales ratio shows how much cash from products sold is the profit of the enterprise. What is important is not how many products the company sold, but how much net profit it earned from these sales.
The return on sales ratio describes the efficiency of sales of the company's main products, and also allows you to determine the share of cost in sales.
Return on sales ratio. Calculation formula for balance sheet and IFRS
The formula for return on sales according to the Russian accounting system is as follows:
Return on sales ratio = Net profit/Revenue = line 2400/line 2110
It should be clarified that when calculating the ratio, instead of net profit in the numerator, the following can be used: gross profit, earnings before taxes and interest (EBIT), earnings before taxes (EBI). Accordingly, the following coefficients will appear:
Gross profit margin ratio = Gross profit/Revenue
Operating profitability ratio =EBIT/Revenue
Return on sales ratio for profit before taxes =EBI/Revenue
To avoid confusion, I recommend using a formula where the numerator is net profit (NI, Net Income), because EBIT is calculated incorrectly based on domestic reporting. The following formula for Russian reporting is obtained:
In foreign sources, the return on sales ratio - ROS is calculated using the following formula:
Video lesson: “Sales profitability: calculation formula, example and analysis”
Sales profitability. An example of a balance sheet calculation for Aeroflot OJSC
Let's calculate the return on sales for the Russian company OJSC Aeroflot. To do this, I will use the InvestFunds service, which allows you to obtain financial statements of the enterprise by quarter. Below is the import of data from the service.
Profit and loss statement of JSC Aeroflot. Calculation of the return on sales ratio
So, let's calculate the return on sales for four periods.
Sales return 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 increased slightly to 6% in the first quarter of 2014, and in the second it halved to 3%. However, the profitability is greater than zero.
Let's calculate this coefficient according to IFRS. To do this, let’s take financial reporting data from the company’s official website.
IFRS report of JSC Aeroflot. Calculation of the return on sales ratio
For nine months of 2014, the return on sales ratio of Aeroflot OJSC 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 you can see, over the year the ratio worsened by 6% from 7% in 2013 to 1% in 2014.
Return on sales ratio. Standard
The value of the normative value for this coefficient Krp>0. If the profitability of sales turns out to be less than zero, then you should seriously think about the efficiency of enterprise management.
What level of return on sales ratio is acceptable for Russia?
– mining – 26%
– agriculture – 11%
– construction – 7%
– wholesale and retail trade – 8%
If you have a low coefficient value, then you should increase the efficiency of enterprise management by increasing the customer base, increasing the turnover of goods, and reducing the cost of goods/services from subcontractors.
