What is the return on sales formula. How Profit Ratio (ROS) is Calculated

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 this moment parties are present in the activities of the enterprise, as well as 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 sales of products is the profitability of sales, which reflects the net income from sales of the company.

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 the production - monetary resources, capital and other resources. To determine the return on assets, you need to divide net profit by the amount of assets in average annual 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 net (after payment of 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. The profit margin may vary depending on various factors that 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

Formula for determining profitability in this case next:

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 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 in the main line of business of the company, 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, given 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 must 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.

The profitability of sales indicator reflects what part of the company's revenue is profit.

The sales profitability formula is calculated for a certain period of time, the unit of measurement is percentage. The general formula for finding return on sales is as follows:

Rp \u003d (P / V) * 100%,

where Rp - profitability of sales,

P is the profit of the enterprise,

B is the company's revenue.

Types of return on sales

When calculating the profitability of sales, different types of profit are used, so there are different versions of the profitability of sales formula. Consider the most common types of return on sales:

Return on sales in accordance with gross profit, which is calculated as the quotient of dividing gross profit by revenue (as a percentage):
Rp (VP) \u003d (Pval / V) * 100%
Operating return on sales, which is the quotient of dividing profit before tax by revenue (in percent):
Rp (OP) \u003d (Pop / V) * 100%
Return on sales in accordance with net profit, which is the quotient of net profit divided by revenue (as a percentage):
Rp (NP) \u003d (Pch / V) * 100%

What does the ROI formula show?

Using the formula for profitability of sales, you can find a coefficient that shows how much of the profit will fall on each ruble earned. The values \u200b\u200bfound using the profitability formula will differ for each enterprise, since their assortment and competitive strategies differ.

Most often found three types of return on sales and they show:

Gross profit margin shows how many percent of gross profit is in each ruble of goods sold;
The operating profitability of sales will show what share of the profit will fall on each ruble that is received from the proceeds from which interest and taxes are paid;
Return on sales based on net profit reflects what share of net profit will fall on each ruble earned.

Determining the profitability of sales helps to optimize the pricing policy of the enterprise, as well as the costs that relate to commercial activities.

The meaning of the formula for profitability of sales

Return on sales is often called the rate of return, as this indicator reflects the share of profit in revenue.

Analyzing the coefficient that characterizes the profitability of sales, it is important to note that if the profitability of sales decreases, this indicates a decrease in the competitiveness of the product and a decrease in demand for it. Then the company's management should think about holding events that stimulate demand, increase the quality of products sold or conquer a new niche in the market.

Revealing trends in changes in the profitability of sales in dynamics, economists single out the reporting and base periods. As the base period, use the indicators of past years (years), when the company received the highest profit.

Formula for calculating profitability of sales by balance sheet

The definition of the base period is necessary to compare the profitability ratio of sales for the reporting period with the ratio that is taken as a basis.

Examples of problem solving

Profitability calculation

The concept of profit from sales

The commercial activity of any company in most cases is aimed at making a profit, designed to cover losses (costs).

Profit includes net income that the company receives in the course of certain economic activities (sale or release of goods, provision of services). The concepts of profit and revenue cannot be considered equivalent, since profit is determined in the process of subtracting from revenue the main items of expenditure for the production of products, among which are:

The cost of goods (services),
Payment of taxes (profit tax, excises, VAT, etc.),
Export fees, etc.

The following components of the work of any company depend on the indicator of realized profit:

Efficient operation of enterprises,
Solvency,
The degree of liquidity.

The enterprise can direct the profit from the sale to self-financing, which leads to an increase in the pace of modernization and automation of the production process.

Sales Profit Formula

There are many ways to calculate the profit of companies, but the basic formula for profit from sales is as follows:

Pr=Vyr-Seb-Nal

Here Pr is the amount of profit from the sale,

Vyr - the amount of proceeds from sales,

cash, taxes

Seb - the cost of goods (services).

According to the second calculation option, the profit from the sale of products is calculated as follows:

Pr \u003d VP-Rupr-Rcom

Here VP is the sum of gross profit,

Rupr - expenses of a managerial nature,

Rkom - expenses of a commercial nature.

Factors affecting profits from sales

The indicator of profit from sales depends on many factors of an internal and external nature.

Internal factors affecting the profit from sales are:

The number of products sold (manufactured), which depends directly on profitability (with an increase in profitability, sales and profit from sales increase).
Assortment structure.
Prices for goods (as prices rise, profits rise).
Cost (when it increases, profit decreases, by reducing the cost, you can increase profits).
Commercial costs.

External factors do not have a direct impact on the amount of profit from sales, they affect the final volume of products, including its cost. The following external factors can be listed:

Deductions for depreciation,
state influence,
conditions of nature,
Market mood (the impact of supply and demand), etc.

Sales Profit Functions

The formula for profit from the sale of goods (services) is used in the process of analyzing the economic activity of enterprises for a deep understanding of the definition of profit.

Applying the most important functions of profit from sales, the manager can:

Conduct a description of the final result of the company's activities,
To identify indicators such as efficiency and stability,
The stimulating function, subject to increasing profit from sales, allows you to increase wages, introduce new technologies, increase the pace of renewal of fixed assets,
Make deductions of taxes and other payments to the state budget, carrying out the fiscal function of profit;
To carry out activities in the field of optimizing the production process through the control function of profit.

Examples of problem solving

Profitability of sales is an indicator of economic efficiency of activity. It is expressed as a percentage and allows you to determine the share of profit in the company's revenue.

For the calculation, you will need data on profit and sales for a certain period.

Calculation formula

Rp = (P / Op) x 100%, where:
P - profit;
Op - sales volume.

Above is the general formula. Depending on the ultimate goals of the analysis, you can take the values of operating, gross or net profit for calculation. The indicators should be reduced to numbers of the same order (if sales are in millions, then profit should also be in millions).

Calculation example

Initial data for calculating the profitability of sales of an online store of goods for needlework for the I quarter. 2015:

gross profit - 275 thousand rubles;
revenue - 632 thousand rubles.

Gross profit margin - 43.5%.

To understand whether the company worked more efficiently in Q1 or Q2, you need to compare the performance of these periods. For example, revenue in the II quarter amounted to 840 thousand rubles, and gross profit - 322 thousand rubles. Profitability, respectively, 38.3%. Thus, in the II quarter. in each ruble received, the share of profit was 5.2% less than in the first.

Why you need to calculate profitability

It is necessary to calculate for the analysis of the financial and economic activities of the company. The indicator can act as an estimate when comparing two companies. In this case, the costs and pricing policy of enterprises are compared.

The higher the value, the more efficiently the resources are used and the more competent pricing policy of the enterprise is carried out. A low rate indicates problems with profitability.

How to calculate profitability as a percentage?

You can increase it in different ways, usually you need a set of measures aimed at:

cost reduction;
increase in the final price of the product;
revision of the composition of the product;
withdrawal from circulation of unprofitable units.

It is best to analyze in dynamics, for several months or years. This will allow you to trace the general trend and identify the weaknesses of the enterprise.

Profitability in dynamics on the example of an online store of goods for needlework

Table 1. Profitability of an online store in dynamics

Image 1. Profitability of an online store in dynamics

In the online store from the 1st quarter. 2013 to Q1 2015 there is an increase in profitability by 11.5%. At the same time, fluctuations in the II and III quarters are visible on the graph. 2013 and 2014 The drawdown is related to the seasonality of demand for handicrafts. The peak of sales is observed in the winter pre-New Year period, at which time ready-made sets that are taken as a gift are in demand. In general, the dynamics of the store is positive.

Questions and answers on the topic

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Profitability of sales can tell about what is the activity of the organization for the sale of its products: profitable or unprofitable.

The concept of return on sales (RP or ROM)

RP- an indicator that reflects the ability of the leaders of the organization to control all kinds of costs. This indicator is expressed as a percentage of income and revenue.
RP coefficient- shows what part of the profit falls on one earned conventional unit.

Let us assume that the financial efficiency of enterprises is almost the same. Enterprises with the shortest production cycle will have a lower return on sales than enterprises with a long production cycle.

If RP is less than zero, then we can conclude that the enterprise is operating at a loss, since in this case the cost exceeds revenue.
Zero profitability is a sign that the organization spends exactly the same amount on production as it acquires after the sale.
A positive return on sales means that the project is profitable. The higher the score, the better for the enterprise.

It is clear that the profitability indicator is very dependent on the scope of the enterprise. For example, in banking this indicator can reach 100%, and in heavy industry - even 3%.

Increasing profitability of sales

An increase in RP is undoubtedly a positive factor for any company.

You can talk about increasing profitability if:

The analysis revealed that the growth rate of income is greater than the growth rate of costs.

This could be affected by the following:

Increased sales volume.
The product range has changed.

With an increase in the demand for goods on the part of buyers, later there is an increase in the number of products sold. Consequently, due to the work of the production lever, income grows faster than costs. The company's management is able to achieve revenue growth by raising prices for a certain product or completely crushing its assortment.

The analysis revealed that the rate of revenue decline is much less than the rate of cost reduction.

This can usually result in:

raising prices for manufactured products;
changes in the structure of the sales assortment.

These developments are considered not entirely positive for the enterprise, and management should be aware of this. After all, profitability indicators look better, but the amount of income decreases.

Revenue growth and cost reduction. This is achieved if:

changes in the range of sales;
cost levels have been changed;
increased prices.

This situation is undoubtedly positive for the organization.

Its decrease

We can talk about a decrease in RP in the following cases.

Cost growth rate is greater than revenue growth rate

The following reasons may influence this:

price reduction;
a change in the direction of increasing the level of costs;
changes in the structure of the product range.

This situation is not a positive trend. To improve the situation, it is important to think about pricing in the organization, as well as how costs are controlled.

The rate of revenue decline faster than the rate of cost reduction

This situation usually occurs for only one reason:

Decrease in sales volumes. It is quite normal if an organization, for one reason or another, decides to reduce its production in a certain market. Costs decline much more slowly than revenue due to the production leverage.

Rising costs and decreasing revenue

Reasons that could affect this fact:

prices have been reduced;
it was decided to make changes to the structure of the assortment of goods;
increased cost rates.

In this situation, it is also desirable to analyze the formation of prices in the enterprise, to pay attention to cost control.

Note: If the market is stable, then income, as a rule, changes faster than costs only under the influence of production leverage.

Formula

In fact, RP is easy to calculate using numbers that you already know. To do this, you will need to choose the appropriate formula from the three listed below and substitute your values. If you do not have specific figures, then they can always be found in the balance sheet.

Calculation of the formula for profitability of sales

In general, the RP formula looks like this:

RP = profit (loss) from sales / sales revenue * 100%

However, it is also customary to calculate gross, operating and net RP. All methods in the calculation will differ in the numerator, and the denominator always remains the same.

Formula 1: gross RP calculation

RP = Gross Profit: Sales Revenue * 100%

This indicator reflects the share of profit in each monetary unit earned by the enterprise.

Formula 2: calculation of operating margin (return on sales by EBIT)

RP = profit (loss) from taxation: sales revenue * 100%

The indicator reflects the share of profit from sales before paying taxes and interest in each monetary unit earned by the enterprise.

Balance Formula

According to the new form of the balance sheet, the above formulas for the profitability of sales will look as follows, respectively:

General formula:

RP = str.2200: str.2110 * 100%,

Formula 1:

RP = str.2100: str.2110 * 100%,

Formula 2:

RP = str.2300: str.2110 * 100%,

Formula 3:

RP = p.2400: p.2110 * 100%.

According to the old form of the balance, these same formulas look different:

General formula:

RP = p.050: p.010 * 100%,

Formula 1:

RP = p.029: p.010 * 100%,

Formula 2:

RP = p.140: p.010 * 100%,

Formula 3:

RP = p.190: p.010 * 100%,

where: RP - profitability of sales;

Important! The current (new) reporting form was approved by the Order of the Ministry of Finance of the Russian Federation dated July 2, 2010 No. 66n.

Note: From 01.01.2013 the profit and loss statement is referred to as the income statement.

RP coefficient and its formula

As mentioned above, the profitability ratio reflects the share of the organization's profit attributable to each conventional unit of earnings. This, in general, is profitability. The coefficient is calculated according to the already presented formulas, but not in percentage terms.

How should the return on sales ratio be calculated?

K RP = profit (loss) from sales / sales revenue

The mentioned coefficient can also be calculated using the balance. It is also possible to calculate it not only in general, but also for each individual product or service. This makes sense if it is necessary to analyze the economic activity of any enterprise.

How to interpret the calculated values

For example, the calculated profitability of the RP is 25%. This means that for every 100 units of the enterprise, there are 25 units of profit. You can also explain the answer as follows: for every ruble there are 25 kopecks of profit.

Note: Calculating the profitability ratio, we get the facts. But having received a specific value, we will never be able to say whether certain investments of capital are profitable or not. For these purposes, for example, asset indicators are calculated.

Calculation example

In 2013, OAO Ivolga's sales revenue amounted to 10 million rubles, and in 2014 it increased to 12 million. Operating profit (before tax) in 2013 was 3 million rubles, and in 2014 it increased to 3 million rubles. .8 million How has the operating RP changed?

Decision:

Calculate the operating profitability of sales in 2013:

RP 2013 = 3m/10m*100% = 30%.

Let's calculate the same figure for 2014:

RP 2014 = 3.8m/12m*100% = 31.7%.

Calculate the change in sales profitability:

∆ RP = 31.7% - 30% = 1.7%.

Conclusion: In 2014, the profitability of sales in terms of profit before tax increased by 1.7%, which is undoubtedly a positive trend for Ivolga OJSC.

Comment: The profitability ratio of sales is calculated according to the indicators of the reporting year. Accordingly, it cannot reflect the planned effect of long-term investments.

There is nothing more important to the management of an enterprise than maximizing revenue. In this regard, it is recommended to periodically carry out calculations and analyze the profitability of sales, and then compare the indicators with previous periods, identify significant factors and draw significant conclusions for yourself for the future.

The degree of economic efficiency of a financial, labor or material resource characterizes such a relative indicator as profitability. It is expressed as a percentage and is widely used to evaluate the performance of a commercial enterprise. There are many types of this concept. Any of them is the ratio of profit to the asset or resource under study.

The essence of the concept of profitability ratio

The profitability ratio of sales shows the business activity of the enterprise and reflects the efficiency of its work. Evaluation of the indicator allows you to determine how much money from the sale of products is the profit of the company. What matters is not how much product was sold, but how much net profit the company earned. With the help of the indicator, you can also find the share of cost in sales.

The profitability ratio of sales is analyzed, as a rule, in dynamics. An increase or decrease in an indicator indicates various economic phenomena.

If profitability increases:

The increase in revenue occurs faster than the increase in costs (either increased sales volumes, or changed the assortment).
Costs are declining faster than revenue is declining (the company has either raised product prices or changed the assortment structure).
Revenue is growing, and costs are becoming smaller (prices have increased, assortment has changed, or cost rates have changed).

The first two situations are definitely favorable for the company. Further analysis is aimed at assessing the sustainability of this situation.

The second situation for the company cannot be called unambiguously favorable. After all, the profitability indicator has improved formally (revenue has decreased). To make decisions, analyze pricing, assortment.

If profitability declines:

Costs are rising faster than revenue (due to inflation, price cuts, increased cost rates, or changes in product mix).
The decrease in revenue is faster than the decrease in costs (sales fell).
Revenues are getting smaller and costs are getting bigger (cost rates have increased, prices have gone down, or the assortment has changed).

The first trend is clearly unfavorable. An additional analysis of the causes is needed to correct the situation. The second situation indicates the desire of the company to reduce its sphere of influence in the market. When a third trend is found, pricing, assortment, and cost control systems need to be analyzed.

How to Calculate Return on Sales in Excel

The international designation of the indicator is ROS. The return on sales ratio is always calculated from the sales profit.

Traditional formula:

ROS = (Profit/Revenue) * 100%.

In specific situations, it may be necessary to calculate the share of gross, balance or other profit in revenue.

Gross return on sales (margin) formula:

(Gross Profit / Sales Proceeds) * 100%.

This indicator shows the level of "dirty" money (before all deductions) earned by the company from the sale of products. The elements of the formula are taken in monetary terms. Gross profit and revenue can be found in the income statement.

Information for calculation:

In the cells for calculating the gross margin, set the percentage format. We enter the formula:

Gross profit margin for 3 years is relatively stable. This means that the company carefully monitors the pricing procedure, monitors the product range.

Return on sales by operating income (EBIT):

(Operating profit / sales revenue) * 100%.

The indicator characterizes how much operating profit falls on the ruble of revenue.

((p. 2300 + p. 2330) / p. 2110) * 100%.

Data for calculation:

Calculate the operating profit margin - substitute the references to the required cells in the formula:

The formula for return on sales by net profit:

(Net profit / revenue) * 100%.

Net profitability shows how much net profit falls on the ruble of revenue. Both figures are taken from the income statement.

Let's show the profitability ratio of sales on the chart:

In 2015, the indicator is significantly reduced, which is regarded as an unfavorable phenomenon. Additional analysis of the assortment list, pricing and cost control systems is needed.

A value above zero is considered normal. A more specific range depends on the field of activity. Each enterprise compares its sales profitability ratio and the standard value for the industry. It is good if the calculated indicator practically does not differ from the inflation rate.

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

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Return on sales ratio Synonyms return on sales profitability products sold return on sales based on profit before tax is calculated in the FinEkAnalysis program in
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 Return on sales % Return on assets % Return on sales % Return on assets % clothing industry 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 The following groups of profitability indicators can be distinguished: return on assets with a breakdown into non-current current 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