Profitability comes from the word rent, and rent literally means income. Based on this, profitability is In simple terms, this is a situation where income exceeds expenses. In this case, from an economic point of view, any enterprise that makes a profit can be considered profitable.
Profitability indicators characterize the work of the enterprise, show how profitable various areas of its activity are. They characterize the final results of management more fully than profit, since their value shows the ratio of the result (effect) to the resources available and consumed in the production process. They are less dependent on inflation than profit indicators. Profitability indicators are used to assess the activities of the enterprise, as a tool in investment policy, as well as pricing.
There are several groups of profitability indicators:
- Indicators that characterize the profitability of the main and investment activities.
- Indicators characterizing the profitability of sales or profitability of turnover.
- Indicators showing how profitable the capital or its individual parts.
Profitability of products and enterprise
It is calculated both for the enterprise as a whole and for each type of product. The size of this indicator depends on the quantity and structure of the products produced by the enterprise.
Product profitability is determined by the ratio of profit to cost.
P=P/S*100, (%).
The profitability of products shows which products are more profitable for production, that is, which products are worth producing and which are not. The cost of production should correspond to the costs.
The profitability of products shows the amount of profit per ruble. It means the ratio of profit to the costs of production, sales of products. It is also the rate of return.
P production = (Price - Cost) / Cost * 100, (%).
The profitability of products shows whether the production of products is efficient and how, but in general, the efficiency of the enterprise.
The profitability of products shows what the result of current costs is.
Profitability of production is calculated by the formula:
P total \u003d Profit / (Fixed assets + Working capital) * 100, (%).
Calculated according to the formula: UR = P / S, where
P - net profit;
C is the cost of goods sold.
To increase this indicator, it is necessary to increase profits and reduce the cost of production.
By investment projects the profitability index is calculated:
IR = Profit / Amount of Investment.
Profit / amount of Revenue.
Return on capital is estimated using Represents the ratio of profit to the cost (average annual) of invested capital.
In the process of functioning of the enterprise there is a process that is continuous. The structure of funds, the sources of their formation are changing, the available resources and the need of the enterprise for financial resources are changing, its external manifestation is the solvency of the enterprise. The inside is characterized financial stability, reflecting the balance of income and expenses, funds and, accordingly, the sources of their formation.
In order to increase the level of profitability, an enterprise must necessarily pursue a flexible policy in the field of production and sales of products, focusing on market volatility.
The profitability of products shows how much profit each ruble invested in production brought. Different data can be used for the calculation. We will tell you which ones, and give examples of the calculation and analysis of the indicator.
Product Profitability Formula
Product profitability is the ratio of profit to the cost of production and sales of products. See more about what is profitability. The calculation of the indicator allows you to choose among the products the combination that gives highest profit. There are several formulas for product profitability, since different data can be used for the calculation:
- in the numerator - net or gross profit ( With);
- in the denominator - both the full cost (cost of goods sold (COGS)), and production.
That is, the formula for the profitability of products may look different.
1. R = CHP / PS,
- NP - net profit (see more details on how to calculate it),
- PS - total cost.
2. R = VP / PS,
VP - gross profit.
3. R = PE / PrS,
- PrS - production cost,
4. R = VP / PrS
The choice of indicator depends on the specific task, and the complexity of obtaining data:
- To calculate the average value of profitability for the company, you can use net profit, since it is explicitly given in the financial statements.
- To determine profitability for different products, it can be difficult to isolate the net profit for each element of the product nomenclature.
- If the task is to evaluate the profitability of only production costs, for example, in the case of high overheads, the production cost falls into the denominator.
An example of calculating the profitability of products
The paper napkin factory's revenue amounted to 200 million rubles, while the following expenses were spent:
- for raw materials and materials - 20 million rubles;
- on the wages with accruals - 50 million rubles;
- for overhead costs - 10 million rubles.;
- for commercial expenses - 40 million rubles.
Calculate the net profit (NP) and the total cost (PV) using the above formula:
PS = 20 + 50 + 10 + 40 = 120
PR \u003d 200 - 120 \u003d 80
The profitability of products according to the formula R \u003d PE / PS was: RP \u003d 80/120 x 100 \u003d 66.6%
Balance calculation formula
Based on the data of RAS Form No. 2, the profitability of products is calculated as follows:
- profitability of sold products in terms of net profit to full cost:
R = Line 2400 form 2 / Sum of lines 2120, 2210 and 2220 form 2.
- profitability of products in terms of net profit to production cost:
R = Form 2 line 2400 / Form 2 line 2120.
- profitability of products in terms of profit from sales to the total cost:
R = Line 2200 form 2 / Sum of lines 2120, 2210 and 2220 form 2.
- profitability of products in terms of profit from sales to production cost:
R = Form 2 line 2200 / Form 2 line 2120.
How to calculate the profit margin of a new product using Excel
If the company plans to include in its assortment new product, evaluate its predicted profitability using the finished model in Excel. This solution will tell you how to work with this model and how to adapt it to your needs.
How to analyze product profitability
From our example, the profitability is 66.6%, which means that each ruble invested in the cost price brings 67 kopecks of net profit. it good result, but how much?
Profitability of products is used in the analysis of the dynamics of the company or for comparison with other companies, industries, economies. So, for example, it is important to control its level during the entire life of the organization so that it does not decrease at least, and make efforts to increase it.
To evaluate the efficiency of a company's expenses, it is necessary to compare the value of product profitability calculated by the formula with the results of peer companies, industry averages or average data for companies in the country and the world.
How to increase the profitability of products
Measures to improve profitability are one of the priorities for a profit-oriented organization. You can increase it by exerting a corresponding influence on the elements of the formula for its calculation:
- increasing profits by extensive methods - increasing revenue due to sales growth and price increase;
- reducing the cost, while reducing the cost with the same revenue also leads to an increase in gross and net profit.
The cost includes both variables and fixed costs, therefore, with an increase in production, specific fixed costs, being distributed over a greater number of units of the product, decrease, which will lead to an increase in profitability, all other things being equal.
There are not many opportunities to increase the price of an already sold product. You can sell a product in a set, produce a VIP, Limited Edition version of the same product, but, for example, in a new package, with an extended set of services, an extended warranty period, etc. There is a large set marketing tools that allow you to increase average price product.
Increasing the efficiency of production processes, replacing expensive materials with cheap ones, the use of new technologies and improvements make it possible to achieve cost reduction, which, in turn, leads to an increase in product profitability.
Profitability of products and the Federal Tax Service
For a Russian entrepreneur, the value of the profitability indicator of sold products, calculated using the formulas above, is all the more important because, according to the Order of the Federal Tax Service (FTS) dated May 30, 2007 N MM-3-06 / [email protected]“On the approval of the concept of a planning system for field tax audits, this indicator is one of the main criteria for increased attention tax office. Every year, the Federal Tax Service prepares a summary of sectoral indicators of product profitability, and if the company's indicators fall below the sectoral ones, the Federal Tax Service includes such a taxpayer in the plan of on-site inspections (with a high degree of probability).
The indicators calculated by the Federal Tax Service can be used by the company to monitor the situation own business relative average indicators for its industry, we can separately thank the Federal Tax Service for this, since it can be difficult to find relevant statistics for other profitability indicators.
To analyze and calculate the effectiveness of the enterprise's activities, it is used wide range economic and financial indicators. They differ in the complexity of the calculation, the availability of data, and the usefulness for analysis.
Profitability is one of the best performance indicators - ease of calculation, data availability and great usefulness for analysis make this indicator mandatory for calculation.
What is the profitability of the enterprise
Profitability (RO - returnon)- overall score economic efficiency activities of the enterprise or the use of capital / resources (material, financial, etc.). This indicator is necessary for the analysis economic activity and for comparison with other enterprises.
Profitability, unlike profit, is a relative indicator, so the profitability of several enterprises can be compared with each other.
Profit, revenue and sales volume are absolute indicators or economic effect, and it is incorrect to compare these data of several enterprises, because such a comparison will not show the true state of affairs.
It is possible that an enterprise with a smaller sales volume will be more efficient and sustainable, that is, it will outperform another enterprise in terms of relative indicators, which is more important. Profitability is also compared to efficiency(efficiency factor).
AT general view profitability shows how many rubles (kopecks) of profit one ruble invested in assets or resources will bring. For the profitability of sales, the formula reads as follows: how many kopecks of profit are contained in one ruble of revenue. Measured as a percentage, this indicator reflects the effectiveness of the activity.
There are several main types of profitability:
- profitability of products / sales (ROTR / ROS - totalrevenue / sale),
- return on cost (ROTC - total cost),
- return on assets (ROA - assets)
- return on investment (ROI - invested capital)
- personnel profitability (ROL – labor)
The universal formula for calculating profitability is as follows:
RO=(Type of profit/Indicator whose profitability needs to be calculated)*100%
In the numerator, the type of profit is most often used profit from sales (from sales) and net profit, but it is possible to calculate , balance sheet profit and . All types of profit can be found in the income statement (profit and loss).
The denominator is the indicator whose profitability needs to be calculated. The indicator is always in value terms. For example, to find the return on sales (ROTR), that is, the denominator should be an indicator of sales in value terms - this is revenue (TR - totalrevenue). Revenue is found as the product of price (P - price) and sales volume (Q - quantity). TR=P*Q.
The formula for calculating the profitability of production
Return on cost (ROTC - returnontotalcost)- one of the main types of profitability required for efficiency analysis. Return on cost is also called the profitability of production, as this indicator reflects the efficiency of the production process.
Profitability of production (cost) is calculated by the following formula:
ROTC=(PR/TC)*100%
In the numerator, profit from sales / sales (PR), which is found as the difference between income (revenue - TR - totalrevenue) and expenses (total cost - TC - totalcost). PR=TR-TC.
In the denominator, the indicator whose profitability needs to be found is the total cost (TC). The full cost consists of all the costs of the enterprise: the cost of materials, semi-finished products, the wages of workers and AUP (administrative and managerial personnel), electricity and other housing and communal services, workshop and factory costs, advertising costs, security, etc.
The largest share in the cost is materials, so the main production is called material-intensive.
Profitability of the cost price shows how many kopecks of profit from the sale will bring one ruble invested in the cost of production. Or, measured as a percentage, this indicator reflects the percentage of efficient use of production resources.
Balance sheet profitability formula
Many types of profitability are calculated on the basis of balance sheet data. The balance sheet contains information about the assets, liabilities and equity of the organization.
This form is compiled 2 times a year, that is, the status of any indicator can be viewed at the beginning of the period and at the end of the period. To calculate the profitability from the balance sheet, the following indicators are required:
- assets (current and non-current);
- the amount of own capital;
- investment size;
- and etc.
You can’t just take any of these indicators and calculate the profitability - this is wrong!
In order to correctly calculate the profitability, you need to find the arithmetic mean of the sum of the indicator at the beginning of the current (end of the previous) and the end of the current period.
For example, find the profitability of non-current assets. From the balance sheet, the sum of non-current assets at the beginning and end of the period is taken and divided in half.
In the balance sheet of medium-sized enterprises, the value of non-current assets is reflected in line 190 - Total for section I, for small enterprises, the value of non-current assets is the sum of lines 1150 + 1170.
The formula for the profitability of non-current assets is as follows:
ROA (in) \u003d (PR / (VnA np + VnA kp) / 2) * 100%,
where VnA np is the value of non-current assets at the beginning of the current (end of the previous) period, VnA kp is the value of non-current assets at the end of the current period.
The profitability of non-current assets shows how many kopecks of profit from sales will bring one ruble invested in non-current assets.
An example of calculating the profitability of production
To calculate the profitability of production, the following indicators are required: total cost (TC) and profit from sales (PR). The data are presented in the table.
PR 1 \u003d TR-TC \u003d 1500000-500000 \u003d 1,000,000 rubles
PR 2 \u003d TR-TC \u003d 2400000-1200000 \u003d 1,200,000 rubles
It is obvious that the revenue and profit from the sale of the second enterprise is higher. In terms of absolute indicators, the effect of the second enterprise is higher. But does this mean that the second enterprise is more efficient? To answer this question, production is needed.
ROTC 1 =(PR/TC)*100%=(1000000/500000)*100%=200%
ROTC 2 =(PR/TC)*100%=(1200000/1200000)*100%=100%
The profitability of the production of the first enterprise is 2 times higher than the profitability of the production of the second enterprise. We can confidently say that the production of the first enterprise is 2 times more efficient than that of the second.
Profitability, as an indicator of the effectiveness of the enterprise, more accurately reflects the real state of affairs in production, sales or investment of the enterprise, allowing you to correctly respond to the current situation, in contrast to the use of absolute indicators that do not give a complete picture.
Video about what shows profitability:
All sales are carried out to achieve the same goal - to extract financial profit. But give objective assessment sales effectiveness is impossible 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.
- Profitability of sales is not a reflection of the planned effect long term investment . 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 received 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 sq.m., telephone equipment proportional per person communal payments etc.), their salary, telephone costs, advertising, the cost of the necessary software (CRM, 1C, etc.), payments for a virtual PBX.
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. negative consequences may follow in the form of a deterioration in the quality of goods (services), a decrease in the efficiency 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 more money to the company's current account, 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 formula for the profitability of products according to the balance sheet does not require the data of form No. 1 (balance sheet). All the necessary information can be obtained from form No. 2 (report on financial results).
The profitability of products according to the balance is calculated for the corresponding period of time, and the unit of measurement of the profitability indicator is a percentage.
Consider the general formula for the profitability of products according to the balance to calculate the efficiency of product sales:
Rpr \u003d (Pr / Vyr) * 100%,
where Rpr is the indicator of profitability,
Pr - the amount of profit,
B - sales proceeds.
In addition to the revenue indicator, the formula for the profitability of products on the balance sheet can be calculated in accordance with the cost price:
Rpr \u003d (Pr / Seb) * 100%,
where Ррп is the profitability of sold products,
Pr - the amount of profit of the enterprise,
Seb is the cost of production.
Types of product profitability
The formula for the profitability of products on the balance sheet determines the coefficient that reflects the part of the profit that relates to each earned ruble of goods sold. The value determined by this formula may be different for enterprises of different industries, with different assortments and competitive strategies.
There are several types of product profitability, among which are most often calculated:
- Profitability in accordance with gross profit shows the percentage of gross profit, which is in each ruble of goods sold;
- Operating profitability shows the share of profit attributable to each ruble that is received from revenue after payment of all tax payments and interest;
- Net return on sales reflects the share of net profit attributable to each ruble earned.
Balance sheet profitability formula provides room for improvement pricing policy any enterprise, as well as finding ways to effectively reduce its costs, which are related to commercial activities.
Product profitability formula by balance sheet (by profit)
When selling products, calculating profitability, economists use different kinds arrived. There are several options for the formula for the profitability of products on the balance sheet.
Consider the most common product profitability formulas:
- Profitability in accordance with gross profit is calculated by the ratio of gross profit to revenue (as a percentage):
P (according to VP) \u003d (Pval / Vyr) * 100%
- Operating profitability is determined by the ratio of profit (until the payment of all tax payments) to revenue (as a percentage):
R(according to OP)=(Pop/Vyr)*100%
- Profitability in accordance with net profit is calculated by the ratio of net profit to revenue:
R (for PE) \u003d (Pch / Vyr) * 100%
The value of product profitability
The profitability of products sold by the enterprise is most often called the rate of return, since it reflects specific gravity profit in the amount of revenue.
The balance sheet product profitability formula characterizes the state of a decrease in the profitability of sales and a simultaneous decrease in the competitiveness of the product, and a drop in demand for it. The management of the enterprise, with a decrease in profitability, must take measures that will stimulate demand, increase the quality of the products sold.
If there is a tendency to change the profitability of products over a period of time, then economists distinguish the base and reporting period. Basic indicators can be considered indicators of past years (one year). These indicators are required to compare the profitability indicator for the reporting period with the coefficient, which is taken as a basis.
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