Return on sales turnover shows. Return on sales based on net profit - formula. Dynamics of change and its impact

In the system of enterprise performance indicators, the most important place belongs to profitability.

Profitability represents a use of funds in which the organization not only covers its costs with income, but also makes a profit.

Profitability, i.e. enterprise profitability, can be assessed using both absolute and relative indicators. Absolute indicators express profit and are measured in monetary terms, i.e. in rubles. Relative indicators characterize profitability and are measured as percentages or as coefficients. Profitability indicators are much less influenced than by profit levels, since they are expressed by different ratios of profit and advanced funds(capital), or profits and expenses incurred(costs).

When analyzing, the calculated profitability indicators should be compared with the planned ones, with the corresponding indicators of previous periods, as well as with data from other organizations.

Return on assets

The most important indicator here is return on assets (otherwise known as return on property). This indicator can be determined using the following formula:

Return on assets- this is the profit remaining at the disposal of the enterprise, divided by the average amount of assets; multiply the result by 100%.

Return on assets = (net profit / average annual assets) * 100%

This indicator characterizes the profit received by the enterprise from each ruble, advanced for the formation of assets. Return on assets expresses a measure of profitability in a given period. Let us illustrate the procedure for studying the return on assets indicator according to the data of the analyzed organization.

Example. Initial data for analysis of return on assets Table No. 12 (in thousand rubles)

Indicators		Actually	Deviation from plan
5. Total average value of all assets of the organization (2+3+4)
(item 1/item 5)*100%

As can be seen from the table, the actual level of return on assets exceeded the planned level by 0.16 points. This was directly influenced by two factors:

• above-plan increase in net profit in the amount of 124 thousand rubles. increased the level of return on assets by: 124 / 21620 * 100% = + 0.57 points;
• an above-plan increase in the enterprise's assets in the amount of 993 thousand rubles. decreased the level of return on assets by: + 0.16 - (+ 0.57) = - 0.41 points.

The total influence of two factors (balance of factors) is: +0.57+(-0.41) =+0.16.

So, the increase in the level of return on assets compared to the plan took place solely due to an increase in the amount of net profit of the enterprise. At the same time, the increase in average cost, others, also reduced the level return on assets.

For analytical purposes, in addition to indicators of profitability of the entire set of assets, indicators of profitability of fixed assets (funds) and profitability of working capital (assets) are also determined.

Profitability of fixed production assets

Let us present the profitability indicator of fixed production assets (otherwise called the capital profitability indicator) in the form of the following formula:

The profit remaining at the disposal of the enterprise multiplied by 100% and divided by the average cost of fixed assets.

Return on current assets

Profit remaining at the disposal of the enterprise multiplied by 100% and divided by the average value of current assets.

Return on Investment

The return on invested capital (return on investment) indicator expresses the efficiency of using funds invested in the development of a given organization. Return on investment is expressed by the following formula:

Profit (before income tax) 100% divided by the currency (total) of the balance sheet minus the amount of short-term liabilities (total of the fifth section of the balance sheet liabilities).

Return on equity

In order to obtain an increase through the use of a loan, it is necessary that the return on assets minus interest on the use of a loan is greater than zero. In this situation, the economic effect obtained as a result of using the loan will exceed the costs of attracting borrowed sources of funds, that is, interest on the loan.

There is also such a thing as financial leverage, which is the specific weight (share) of borrowed sources of funds in the total amount of financial sources for the formation of the organization’s property.

The ratio of the sources of formation of the organization's assets will be optimal if it provides the maximum increase in return on equity capital in combination with an acceptable amount of financial risk.

In some cases, it is advisable for an enterprise to obtain loans even in conditions where there is a sufficient amount of equity capital, since the return on equity capital increases due to the fact that the effect of investing additional funds can be significantly higher than the interest rate for using a loan.

The creditors of this enterprise, as well as its owners (shareholders), expect to receive certain amounts of income from the provision of funds to this enterprise. From the point of view of creditors, the profitability (price) indicator of borrowed funds will be expressed by the following formula:

The fee for using borrowed funds (this is the profit for lenders) multiplied by 100% divided by the amount of long-term and short-term borrowed funds.

Return on total capital investment

A general indicator expressing the efficiency of using the total amount of capital available to the enterprise is return on total capital investment.

This indicator can be determined by the formula:

Expenses associated with attracting borrowed funds plus profit remaining at the disposal of the enterprise multiplied by 100% divided by the amount of total capital used (balance sheet currency).

Product profitability

Product profitability (profitability of production activities) can be expressed by the formula:

The profit remaining at the disposal of the enterprise multiplied by 100% divided by the total cost of products sold.

The numerator of this formula can also use the profit indicator from sales of products. This formula shows how much profit an enterprise has from each ruble spent on the production and sale of products. This profitability indicator can be determined both for the organization as a whole and for its individual divisions, as well as for individual types of products.

In some cases, product profitability can be calculated as the ratio of the profit remaining at the disposal of the enterprise (profit from product sales) to the amount of revenue from product sales.

Product profitability, calculated as a whole for a given organization, depends on three factors:

• from changes in the structure of sold products. An increase in the share of more profitable types of products in the total amount of production helps to increase the level of profitability of products.;
• changes in product costs have an inverse effect on the level of product profitability;
• change in the average level of selling prices. This factor has a direct impact on the level of profitability of products.

Return on sales

One of the most common profitability indicators is return on sales. This indicator is determined by the following formula:

Profit from sales of products (works, services) multiplied by 100% divided by revenue from sales of products (works, services).

Return on sales characterizes the share of profit in revenue from product sales. This indicator is also called the rate of profitability.

If the profitability of sales tends to decrease, then this indicates a decrease in the competitiveness of the product in the market, as it indicates a reduction in demand for the product.

Let's consider the procedure for factor analysis of the return on sales indicator. Assuming that the product structure remains unchanged, we will determine the impact on the profitability of sales of two factors:

• changes in product prices;
• change in product costs.

Let us denote the profitability of sales of the base and reporting period, respectively, as and .

Then we obtain the following formulas expressing the profitability of sales:

Having presented profit as the difference between revenue from sales of products and its cost, we obtained the same formulas in a transformed form:

Legend:

∆K— change (increment) in profitability of sales for the analyzed period.

Using the method (method) of chain substitutions, we will determine in a generalized form the influence of the first factor - changes in product prices - on the return on sales indicator.

Then we will calculate the impact on the profitability of sales of the second factor - changes in product costs.

Where ∆K N— change in profitability due to changes in product prices;

∆K S— change in profitability due to changes in . The total influence of two factors (balance of factors) is equal to the change in profitability compared to its base value:

∆К = ∆К N + ∆К S,

So, increasing the profitability of sales is achieved by increasing prices for products sold, as well as reducing the cost of products sold. If the share of more profitable types of products in the structure of products sold increases, then this circumstance also increases the level of profitability of sales.

In order to increase the level of profitability of sales, the organization must focus on changes in market conditions, monitor changes in product prices, constantly monitor the level of costs for production and sales of products, as well as implement a flexible and reasonable assortment policy in the field of production and sales of products.

Globally, profitability is a set of indicators that collectively characterize the efficiency of a business, or rather its profitability. Profitability is always the ratio of profit to the object whose effect you want to know. In fact, this is the share of profit per unit of the analyzed object.

Using profitability indicators, you can find out how effectively the equity capital or assets of the enterprise are used ( see “Determining return on assets (balance sheet formula)” ), whether its production is profitable. But in this article we will focus directly on the profitability of sales.

Return on sales is the ratio of profit to revenue

Return on sales gives an idea of ​​the share of profit in the company's revenue. In analysis, it is usually referred to as ROS (short for return on sales).

The general formula for return on sales is as follows:

ROS = Pr / Op × 100%,

where: ROS - return on sales;

Pr - profit;

Op - sales volume or revenue.

Return on sales is a relative indicator; it is expressed as a percentage.

How to calculate return on sales on balance sheet

To calculate the profitability of sales, information from the financial results report (Form 2) is used.

Read the article about form 2 “Filling out Form 2 of the balance sheet (sample)” .

In this case, the formula for profitability of sales on the balance sheet depends on what profitability the user is interested in:

1. Gross profit margin. In this case, the formula for calculating profitability of sales will be as follows:

ROS = line 2100 / line 2110 × 100.

1. Operating profit margin:

ROS = (line 2300 + line 2330) / line 2110 × 100.

1. Net profit margin:

ROS = line 2400 / line 2110 × 100.

What is the standard value of return on sales?

There are no special standards for profitability of sales. Average statistical values ​​of profitability by industry are calculated. For each type of activity, its own coefficient is considered normal.

In general, a coefficient ranging from 1 to 5% indicates that the enterprise is low-profitable, from 5 to 20% is medium-profitable, and from 20 to 30% is highly profitable. Over 30% is already super-profitability.

Performance indicators can be divided into direct and inverse. Direct efficiency indicators are return coefficients, which show what standard unit of result is obtained from a standard unit of costs for its production. Inverse efficiency indicators are capacity coefficients, which illustrate how many conventional units of input are needed to obtain a conventional unit of result.

One of the main indicators of the efficiency of an enterprise's economic activity is profitability. Profitability indicators are less susceptible to the influence of inflation and are expressed by different ratios of profit and costs. Profitability indicators are mainly measured in the form of ratios.

Profitability

Profitability can be defined as an indicator of economic efficiency, reflecting the degree of efficiency in the use of material, monetary, production, labor and other resources.

Profitability indicators are divided into different groups and calculated as the ratio of selected indicators.

The main types of profitability are the following indicators:

1. Return on assets.
2. Profitability of fixed production assets.
3. Sales profitability.

Return on assets

Return on assets is a financial ratio showing the profitability and efficiency of an enterprise. Return on assets shows how much profit an organization receives from each ruble spent. Return on assets is calculated as the quotient of net profit divided by average assets, multiplied by 100%.

Return on assets = (Net profit / Average annual assets) x 100%

The values ​​for calculating return on assets can be taken from the financial statements. Net profit is indicated in Form No. 2 “Profit and Loss Statement” (new name “Statement of Financial Results”), and the average value of assets can be obtained from Form No. 1 “Balance Sheet”. For accurate calculations, the arithmetic average of assets is calculated as the sum of assets at the beginning of the year and the end of the year, divided by two.

Using the return on assets indicator, you can identify the discrepancies between the predicted level of profitability and the actual indicator, and also understand what factors influenced the deviations.

Return on assets can be used to compare the performance of companies in the same industry.

For example, the value of the enterprise’s assets in 2011 amounted to 2,698,000 rubles, in 2012 – 3,986,000 rubles. Net profit for 2012 is 1,983,000 rubles.

The average annual value of assets is equal to 3,342,000 rubles (arithmetic average between the indicators of the value of assets for 2011 and 2012)

Return on assets in 2012 was 49.7%.

Analyzing the obtained indicator, we can conclude that for each ruble spent the organization received a profit of 49.7%. Thus, the profitability of the enterprise is 49.7%.

Profitability of fixed production assets

Profitability of fixed production assets or profitability of fixed assets is the quotient of net profit divided by the cost of fixed assets, multiplied by 100%.

Profitability of OPF = (Net profit / Average annual cost of fixed assets) x 100%

The indicator shows the real profitability from the use of fixed assets in the production process. Indicators for calculating the profitability of fixed production assets are taken from financial statements. Net profit is indicated in Form No. 2 “Profit and Loss Statement” (new name “Statement of Financial Results”), and the average value of fixed assets can be obtained from Form No. 1 “Balance Sheet”.

For example, the value of the enterprise's fixed production assets in 2011 amounted to 1,056,000 rubles, in 2012 - 1,632,000 rubles. Net profit for 2012 is 1,983,000 rubles.

The average annual cost of fixed assets is equal to 1,344,000 rubles (arithmetic average of the cost of fixed assets for 2011 and 2012)

The profitability of fixed production assets is 147.5%.

Thus, the real return on the use of fixed assets in 2012 was 147.5%.

Return on sales

Return on sales shows what portion of an organization's revenue is profit. In other words, return on sales is a coefficient that illustrates what share of profit is contained in each ruble earned. Return on sales is calculated for a given period of time and expressed as a percentage. With the help of sales profitability, an enterprise can optimize costs associated with commercial activities.

Return on Sales = (Profit / Revenue) x 100%

Return on sales values ​​are specific to each organization, which can be explained by differences in the competitive strategies of companies and their product range.

To calculate return on sales, different types of profit can be used, which leads to the existence of different variations of this ratio. The most commonly used are return on sales calculated based on gross profit, operating return on sales, and return on sales calculated based on net profit.

Return on sales by gross profit = (Gross profit / Revenue) x 100%

Return on sales based on gross profit is calculated as the quotient obtained by dividing gross profit by revenue multiplied by 100%.

Gross profit is determined by subtracting cost of sales from revenue. These indicators are contained in Form No. 2 “Profit and Loss Statement” (new name “Statement of Financial Results”).

For example, the gross profit of the enterprise in 2012 was 2,112,000 rubles. Revenue in 2012 was 4,019,000 rubles.

The gross profit margin on sales is 52.6%.

Thus, we can conclude that each ruble earned contains 52.6% of the gross profit.

Operating return on sales = (Profit before tax / Revenue) x 100%

Operating return on sales is the ratio of profit before taxes to revenue, expressed as a percentage.

Indicators for calculating operating profitability are also taken from Form No. 2 “Profit and Loss Statement”.

Operating return on sales shows what part of the profit is contained in each ruble of revenue received minus interest and taxes paid.

For example, profit before tax in 2012 is 2,001,000 rubles. Revenue in the same period amounted to 4,019,000 rubles.

Operating return on sales is 49.8%.

This means that after deducting taxes and interest paid, each ruble of proceeds contains 49.8% of profit.

Return on sales by net profit = (Net profit / Revenue) x 100%

Return on sales based on net profit is calculated as the quotient of net profit divided by revenue, multiplied by 100%.

Indicators for calculating return on sales based on net profit are contained in Form No. 2 “Profit and Loss Statement” (new name “Financial Results Statement”).

For example, Net profit in 2012 is equal to 1,983,000 rubles. Revenue in the same period amounted to 4,019,000 rubles.

Return on sales based on net profit is 49.3%. This means that in the end, after paying all taxes and interest, 49.3% of profit remained in each ruble earned.

Cost-benefit analysis

Return on sales is sometimes called the rate of profitability, because return on sales shows the share of profit in revenue from the sale of goods, works, and services.

To analyze the coefficient characterizing the profitability of sales, you need to understand that if the profitability of sales decreases, this indicates a decrease in the competitiveness of the product and a drop in demand for it. In this case, the enterprise should think about carrying out activities to stimulate demand, improving the quality of the product offered, or conquering a new market niche.

Within the framework of factor analysis of profitability of sales, the influence of profitability on changes in prices for goods, works, services and changes in their costs is considered.

To identify trends in changes in sales profitability over time, you need to distinguish the base and reporting periods. As a base period, you can use the indicators of the previous year or the period in which the company made the greatest profit. The base period is needed to compare the obtained return on sales ratio for the reporting period with the ratio taken as a basis.

Profitability of sales can be increased by increasing prices for the range offered or reducing costs. To make the right decision, an organization must focus on such factors as: the dynamics of market conditions, fluctuations in consumer demand, the possibility of saving internal resources, assessment of the activities of competitors, and others. For these purposes, tools of product, pricing, sales and communication policies are used.

The following main directions for increasing profits can be identified:

1. Increase in production capacity.

Using the achievements of scientific progress requires capital investment, but allows you to reduce the costs of the production process. Existing equipment can be upgraded, which will lead to resource savings and increased operational efficiency.

2. Product quality management.

High-quality products are always in demand, therefore, if the level of return on sales is insufficient, the company should take measures to improve the quality of the products offered.

3. Development of marketing policy.

Marketing strategies are focused on product promotion based on market research and consumer preferences. Large companies create entire marketing departments. Some enterprises have a separate specialist who is involved in the development and implementation of marketing activities. In small organizations, the responsibilities of a marketer are assigned to managers and other specialists in management departments. requires significant costs, but its successful implementation leads to excellent financial results.

4. Cost reduction.

The cost of the proposed product range can be reduced by finding suppliers who offer products and services cheaper than others. Also, while saving on the price of materials, you need to ensure that the quality of the final product offered for sale remains at the proper level.

5. Staff motivation.

Personnel management is a separate sector of management activity. The production of quality products, the reduction of defective products, and the sale of the final product to a certain extent depend on the responsibility of employees. In order for employees to perform their job duties efficiently and promptly, there are various motivational and incentive strategies. For example, rewarding the best employees, holding corporate events, organizing corporate press, etc.

Summarizing the above, readers of MirSovetov can conclude that profit and profitability indicators are the main criteria for determining the effectiveness of the financial and economic activities of an enterprise. In order to improve the financial result, it is necessary to evaluate it, and based on the information received, analyze which factors are hindering the development of the organization as a whole. Once the existing problems have been identified, you can move on to formulating the main directions and activities in order to increase the company's profits.

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There are several options for determining return on sales (ROS, Return on Sales) - one of the most important indicators for economic analysis of activities. And in this article we will talk about various formulas for calculating profitability of sales.

From this article you will learn:

1. EBIT formula
2. Formula for balance
3. Gross profit formula
4. What does the result obtained using the formula in percentage indicate?
5. What if the formula for profitability of product sales showed a drop

Classic formula for calculating return on sales

Most often, to determine the profitability and efficiency ratio, we turn to the formula for return on sales based on net profit, considering it as the ratio of the company’s net profit (NP) to sales revenue (TR) for the same period:

NPM=PP/TR.

Indicators for the numerator and denominator are also calculated using separate formulas. Revenue is defined as the product of price (P, or Price) and sales volume, the number of units sold (Q, Quantity):

It is important to note that in order to include the result in the return on sales formula, indirect taxes paid in the analyzed period will need to be subtracted from TR.

By calculating revenue, you can highlight the net profit of the enterprise. To do this, all kinds of taxes (N), expenses (Pr), the cost of goods (TC, or Total Cost) are subtracted from the revenue and other income (PrD) is added:

PE=TR-TC-PrR+PrD-N.

The company receives other expenses and income as a result of side activities, for example, trading in shares and securities, differences from currency exchange, participation in the work of other organizations and the benefits received from this.

To determine the level of profitability of sales The formula may include the following indicators instead of net profit:

• earnings before interest and taxes (EBIT);
• operating profit from core activities;
• marginal profitability of the enterprise (or Gross Margin - gross margin).

The choice between these values ​​is determined by the tax burden, available sales information and calculation purposes.

For example, the analysis can be aimed at studying the effectiveness of different types of core activities in the field of production and sales or at studying individual products and their groups. In this case, it is recommended to determine the profitability of sales using a formula with gross margin, since calculating net profit will require the distribution of costs for each type of product, and this is a rather labor-intensive task with uncertain utility.

Distribution of income tax is also not a simple job, so for in-depth economic analysis in the NPM formula, instead of PE, you can use those parameters that will be easier to determine. Justified labor costs in this case will be the best solution.

EBIT return on sales formula

Operating profitability, EBIT, return on sales and revenue (TR, or Total Revenue) can be used to determine operating profitability. It is important not to confuse the concepts of operating and earnings before interest and taxes (Earnings Before Interest and Taxes).

ROS=EBIT/TR – This is a formula for return on sales using the EBIT variable, which is determined in accordance with Russian accounting standards as follows:

EBIT = line 2300 “Profit (loss) before tax” + line 2330 “Interest payable”.

Profit before taxes and interest actually occupies an intermediate position between net and gross profit.

Formula for return on sales on balance sheet

Calculation of the efficiency and profitability of sales can also be done using the company’s balance sheet indicators. In this case, profitability is obtained as a ratio, where the numerator is an indicator of unprofitability or sales profitability (for example, in the company’s balance sheet in form No. 1), and the denominator is revenue (for example, taken in form No. 2 or information on financial performance). So we get a list of interchangeable formulas:

RP = profit (loss) from sales / revenue (net) from sales,

RP = line 050 / line 010 f. No. 2,

RP = line 2200 / line 2110.

Formula for return on sales based on gross profit

Gross profitability of sales (or in English terminology - Gross Profit Margin, GPM) is calculated as a ratio, where the numerator is the value of gross profit (GP), and the denominator is revenue (TR):

GPM=VP/TR.

The VP value is usually calculated for reporting purposes, so it is either taken from documents or determined independently. Gross profit in trade is what remains from the revenue when the Total Cost of the product is subtracted from it:

VP=TR-TC.

Revenue is equal to the product of price and the number of units sold ( TR=P*Q). Thus, gross profit can be calculated using the following formula:

VP=P*Q-TC.

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What does the result obtained using the formula for return on sales as a percentage indicate?

As mentioned at the beginning of the article, ROS is a measure of how much profit a company makes from each individual monetary unit of revenue. In other words, profitability tells us about the effectiveness of sales, about how much money the company actually earns from each ruble received from the client.

To assess how high profitability is, it would be logical to rely on standard market indicators. However, it is not possible to determine them. So top management is faced with the task of analyzing their industry and competitors to derive their own standards and acceptable fluctuations in results, calculated using the return on sales formula.

If you analyze the return on sales for the company as a whole

In comparison with competing enterprises, an obvious rule clearly works: the lower the profitability ratio (that is, the lower the percentage of profit in each ruble earned), the weaker your company performs compared to others. After all, this means that revenue mainly covers expenses and does not generate income.

Poor profitability indicators may indicate an unsuccessful pricing policy or an erroneous market strategy (for example, when a company attracts attention by dumping). If the return on sales ratio according to the formula on the balance sheet when summing up the results is too small or falls each time, then it is worth thinking about the marginality of products or reducing costs for them.

If you are analyzing return on sales for pricing purposes

Calculating return on sales using a formula based on the balance sheet or other indicators is available not only for analyzing the company at the top level, but also for studying the effectiveness of individual areas and making reasonable decisions.

For example, an analysis of product profitability can suggest the direction of pricing policy. It is also worth noting how the ROS variable is interconnected with the scaling of sales: with an increase in the number of goods sold, overhead costs are redistributed to everything and do not themselves grow significantly. This means that the percentage of expenses decreases, and revenue increases, as a result of which the profitability ratio increases.

If you are analyzing profitability of sales for assortment policy purposes

When they calculate the net return on sales formula for the enterprise as a whole, they can judge the overall picture based on the data obtained, but they are unlikely to have all the necessary information to make adequate decisions.

In order for subsequent actions to improve the situation, research into individual product lines, groups and products is required. Their coefficients will allow you to rank products and find the weakest points.

But do not forget that each type of product has its own strategic role. So, for example, a low ROS for a company may arise due to a product or service that, according to the BCG matrix, is a “money bag” (or “cash cow”). These are products with stable high demand, providing the company with a significant portion of its revenue. So refusing such a product would be a serious mistake.

Return on sales formula in action (example)

Let’s say the company “Wings and Pilots” received 30 million rubles in net profit in 2016, and in 2017 – only 23 million rubles. At the same time, revenue was equal to 150 million rubles in 2016 and 140 million rubles in 2017. Let’s calculate the return on sales using the formula using an example:

In 2017, Return on Sales decreased by 3.6%, while profits decreased by 23.3% and revenue, not so significantly, by 6.7%. This ratio of changes indicates that costs have increased at the enterprise. With such a deterioration in the ratio, it is recommended to study more deeply the profitability of individual products:

These calculations using the return on sales formula and determining changes in the subsequent period showed an interesting case: product X has a decrease in ROS, which happens because revenue remains the same and profit decreases. Such situations arise when the product has developed to “maturity”. That is, promotion eats up more and more expenses.

At the same time, product Y showed a decline in all parameters except profitability. ROS increases because revenue has fallen more than profit. In fact, it is possible that Y's sales began to fall, but Wings and Pilots effectively optimized costs. This happens with new products.

Product X generates the majority of revenue, but this leads to a paradoxical situation in which a 2.9% drop in X's profitability and a 1.4% increase in Y's ROS provide an overall decrease in the result obtained from the return on sales formula.

In-depth analysis can be carried out not only for product lines or individual products, but also for network branches, touch points, and sales managers. Such research provides data for strategic decisions.

If the formula for profitability of product sales showed a drop

Business is aimed at obtaining maximum profits, which means that the company's strategy is based on this intention. However, any strategic decision aimed at increasing profitability faces several limitations: the limited number of resources in the company in general and in particular. Market size is also a limit, because it is extremely difficult to sell more than the market is willing to accept.

If the strategy aims to increase the ROS ratio, then in fact we are talking about either cutting costs, or increasing profits, or, in the best case scenario, about the simultaneity of these factors. And this gives real results even with a revenue ceiling that is determined by the market.

At the same time, a decrease in the indicator obtained using the return on sales formula can also be determined by the strategy, for example:

• increase in depreciation payments due to recent capital investments of the enterprise. Increased spending reduces the Return on Sales ratio;
• maintaining the previous level of sales of a “mature” product (as in the example above) by injecting funds into its promotion. Thus, the share of costs in revenue increases, and profitability decreases;
• strategy for market capture by a dumping company. Obviously, profits decrease during dumping, but the enterprise achieves its goal.

More detailed factor analysis of profitability of sales using formulas

To detect the reasons for the decrease in ROS in comparison with another reporting period or with the planned value, it is recommended to conduct factor analysis.

Formula 1. Calculation of profitability of sales

For further analysis, the return on sales formula must be detailed by breaking down the profit into indicators by which it can be calculated.

Formula 2. Detailed calculation of profitability of sales

Notations used	Units	Decoding	Data source
		Profitability ratio	Computations
			Statement of financial results (page 2110) or income and expenses
		Management costs	Statement of financial results (page 2220) or income and expenses
		Business expenses	Statement of financial results (page 2210) or income and expenses
		Cost price	Statement of financial results (page 2120) or income and expenses

Revenue, cost and expenses can influence ROS, or RP, in a variety of ways. The change in Return on Sales, taking into account these factors, can be determined using the following formula for return on sales:

Formula 3. Calculation of changes in profitability of sales under the combined influence of factors

Notations used	Units	Decoding	Data source
		Change in profitability ratio	Computations
			Formula 4
		Change in profitability of sales due to cost	Formula 5
		Change in profitability of sales due to selling costs	Formula 6
		Change in return on sales of management costs	Formula 7

Let us sequentially consider all the formulas indicated in the previous table as data sources:

Formula 4. Calculation of changes in profitability of sales due to changes in revenue

Notations used	Units	Decoding	Data source
		Change in return on sales due to revenue	Computations
		Revenue in the analyzed period
		Revenue in the base period	Statement of financial results (income and expenses) for the base period
			Statement of financial results (income and expenses) for the base period
		Business expenses in the base period	Statement of financial results (income and expenses) for the base period

If the return on sales formula and the change in the resulting coefficient showed a difference between reporting periods of more than 1%, it is recommended to do a detailed factor analysis of revenue.

Formula 5. Calculation of changes in profitability of sales due to cost

Notations used	Units	Decoding	Data source
		Change in profitability of sales under the influence of cost	Computations
			Statement of financial results (income and expenses) for the analyzed period
		Cost in the base period	Statement of financial results (income and expenses) for the base period
		Management costs in the base period	Statement of financial results (income and expenses) for the base period
			Statement of financial results (income and expenses) for the base period
		Revenue in the reporting period	Statement of financial results (income and expenses) for the analyzed period

If, due to changes in the cost of production, the RP has fallen or increased by more than 1%, then this factor requires separate study. It is important to analyze the reasons for changes in cost, since the parameters that determine it (output volume, structure, level of variable costs, etc.) have an indirect impact on the profitability of sales.

Formula 6. Calculation of changes in profitability of sales due to business expenses

Notations used	Units	Decoding	Data source
		Change in sales profitability under the influence of commercial costs	Computations
		Revenue in the reporting period	Statement of financial results (income and expenses) for the analyzed period
		Administrative expenses in the base period	Statement of financial results (income and expenses) for the base period
		Cost in the reporting period	Statement of financial results (income and expenses) for the analyzed period
		Selling expenses in the base period	Statement of financial results (income and expenses) for the base period
			Statement of financial results (income and expenses) for the analyzed period

The formula for changing sales profitability under the influence of management costs has the following variable parameters:

Formula 7. Calculation of changes in profitability of sales due to management expenses

Notations used	Units	Decoding	Data source
		Changes in profitability of sales under the influence of management costs	Computations
		Administrative expenses in the reporting period	Statement of financial results (income and expenses) for the base period
		Administrative expenses in the base period	Statement of financial results (income and expenses) for the base period
		Revenue in the reporting period	Statement of financial results (income and expenses) for the analyzed period
		Cost in the same period	Statement of financial results (income and expenses) for the analyzed period
		Selling expenses in the reporting period	Statement of financial results (income and expenses) for the analyzed period

If the results of factor analysis indicate serious reasons for the decrease in profitability of sales in your online business, then it is better not to wait for things to worsen, but to turn to specialists.

To analyze and calculate the efficiency of an enterprise, a wide range of economic and financial indicators is used. They differ in the complexity of calculation, availability of data and usefulness for analysis.

Profitability is one of the optimal performance indicators - ease of calculation, availability of data and enormous usefulness for analysis make this indicator a must-have for calculation.

What is enterprise profitability

Profitability (RO – returnon)– a general indicator of the economic efficiency of an enterprise or the use of capital/resources (material, financial, etc.). This indicator is necessary for analyzing economic activities 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 effects and it is incorrect to compare these data from several enterprises, because such a comparison will not show the true state of affairs.

Perhaps an enterprise with a smaller sales volume will be more efficient and sustainable, that is, it will bypass another enterprise in terms of relative indicators, which is more important. Profitability is also compared with efficiency(efficiency factor).

In general, profitability shows how many rubles (kopecks) of profit one ruble invested in assets or resources will bring. For 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 activities.

There are several main types of profitability:

• profitability of products/sales (ROTR/ROS – total revenue/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 on the income statement (profit and loss).

The denominator is the indicator whose profitability needs to be calculated. The indicator is always in monetary terms. For example, find the return on sales (ROTR), that is, the denominator should include the sales volume indicator in value terms - this is revenue (TR - total revenue). Revenue is found as the product of price (P – price) and sales volume (Q – quantity). TR=P*Q.

Formula for calculating production profitability

Return on cost (ROTC – returnontotalcost)– one of the main types of profitability necessary for efficiency analysis. Cost profitability is also called production profitability, as this indicator reflects the efficiency of the production process.

Production profitability (cost) is calculated using the following formula:

ROTC=(PR/TC)*100%

The numerator contains profit from sales/sales (PR), which is 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 total cost consists of all the costs of the enterprise: costs of materials, semi-finished products, wages of workers and administrative and management personnel, electricity and other housing and communal services, workshop and factory costs, costs of advertising, security, etc.

The largest share of the cost is made up of materials, which is why the main industries are called material-intensive.

Return on cost shows how many kopecks of profit from sales will be brought by one ruble invested in the cost of production. Or, measured as a percentage, this indicator reflects how efficient the use of production resources is.

Formula for calculating profitability on balance sheet

Many types of profitability are calculated based on balance sheet data. The balance sheet contains information about the assets, liabilities and equity of an 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 profitability from the balance sheet, the following indicators are required:

• assets (current and non-current);
• the amount of equity capital;
• investment size;
• and etc.

You cannot simply take any of these indicators and calculate profitability - this is wrong!

In order to correctly calculate profitability, you need to find the arithmetic average of the amount 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. The sum of the values ​​of non-current assets at the beginning and end of the period is taken from the balance sheet 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 return on non-current assets is as follows:

ROA (in) = (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 return on non-current assets shows how many kopecks of profit from sales will be brought by one ruble invested in non-current assets.

Example of calculating production profitability

To calculate the profitability of production, the following indicators are required: total cost (TC) and profit from sales (PR). The data is presented in the table.

PR 1 =TR-TC=1500000-500000=1,000,000 rubles

PR 2 =TR-TC=2400000-1200000=1,200,000 rubles

Obviously, the second enterprise has higher revenue and profit from sales. When measured in absolute terms, the effect of the second enterprise is higher. But does this mean that the second enterprise is more effective? To answer this question, production is necessary.

ROTC 1 =(PR/TC)*100%=(1000000/500000)*100%=200%

ROTC 2 =(PR/TC)*100%=(1200000/1200000)*100%=100%

The profitability of production of the first enterprise is 2 times higher than the profitability of 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 efficiency of an 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, which do not give a complete picture.