Formula for calculating sales profitability as a percentage:
ROS = (Operating Profit / Revenue) * 100%
If the profitability found in this way has kuwait whatsapp numbers fallen over a certain period of time, it means that at some stage each earned ruble required a greater expenditure of resources. For example, the cost of goods from an intermediary could have increased, the rent of the premises could have become more expensive, or the salaries of the staff could have increased.
Let's analyze the formula for calculating the sales profitability ratio in this situation: in November, Natalia received revenue in the amount of 720,000 rubles. She spent 350,000 rubles on the production of goods, and paid 40,000 rubles for rent. Then operating expenses were: 350,000 + 40,000 = 390 thousand. Operating profit is equal to: 720 thousand - 390 thousand = 330 thousand. As a result, the profitability was: (330,000/720,000) x 100% = 45.8%.
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Alexander Kuleshov
Alexander Kuleshov
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Examples of calculating sales profitability using formulas
We have figured out how profitability is calculated. To calculate it, we will need indicators that any enterprise determines when summing up its work.
Organizations can use a formula for determining sales profitability based on the balance sheet, or more correctly, on its appendix, that is, the financial performance report. It contains:
revenue (indicated in line 2110);
operating profit (line 2200);
gross profit (written in line 2100);
net profit (written in line 2400).
As a rule, entrepreneurs use the formula for return on sales by net profit and revenue, since they do not form the above-mentioned financial report. To calculate the gross as well as operating profit, they must carry out detailed cost accounting. So they not only learn the ratio of return on sales on the balance sheet by the formula, but also use it to manage the organization.
Let's calculate the profitability of sales of an individual entrepreneur and compare the results for two periods. All the indicators required for this are given in Table 1.
Table 1. Performance indicators for the first and second quarters (in rubles)
Indicator 1st quarter 2nd quarter
Revenue 1 1,000,000 1 100 000
Cost of production of clothing 2 450,000 495,000
Gross profit (difference between lines 1 and 2) 3 550,000 605,000
Costs of management processes 4 50,000 50,000
Costs of implementation 5 300,000 350,000
Operating Profit (Line 3 – Line 4 – Line 5) 6 200,000 205,000
Tax (simplified tax system 15%) (line 6 × 15%) 7 30,000 30 750
Net income (difference between lines 6 and 7) 8 170,000 174 250
The second period shows growth in all forms of profit, including revenue. However, it is always important to analyze the profitability of the business, even if you are confident that the work is being done correctly.
Profitability of the first period:
By gross profit (according to the return on sales formula): 550 thousand / 1,000 thousand x 100 = 55%.
In terms of net profit: 170 thousand / 1,000 thousand x 100 = 17%.
In terms of operating profit: 200 thousand / 1,000 thousand x 100 = 20%.
Payments for the next period:
By gross profit: 605 thousand / 1,100 thousand × 100 = 55%.
Net profit: 174.25 thousand / 1,100 thousand × 100 = 15.8%.
The profitability found from operating profit was: 205 thousand / 1,100 thousand × 100 = 18.6%.
Table 2. Profitability of sales of the entrepreneur for the first and second quarters
Return on sales 1st quarter 2nd quarter Dynamics
By gross profit 55% 55% -
By operating profit 20% 18.6% -1.4%
By net profit 17% 15.8% -1.2%
Conclusions : the values found are evidence of a decrease in work efficiency. These are not catastrophic changes, but it is necessary to identify the reason for their appearance.
Profitability, calculated on net income, decreased by 1.2%. This suggests that the second quarter was less productive, although there was a slight increase in net income.
The profitability found by gross profit remained at the same level, that is, the efficiency did not fall due to the cost of the goods. Consequently, the decrease in the return on production is not determined by the increase in the cost of raw materials.
Operating profit margin fell by 1.4% due to increased costs unrelated to clothing production. From the fourth and fifth lines of the first table, it can be seen that the deterioration in returns is due to increased costs of product distribution — in the 2nd period, they increased by 50 thousand rubles.
Examples of calculating sales profitability using formulas
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To find the reason, you need to analyze the business expenses in detail. Perhaps the entrepreneur spent more money on advertising the product and promoting the brand. Or perhaps transportation costs increased.
Overall, the company feels good. A shift in performance indicators in a small range is considered normal. If the formula shows a drop in sales profitability over several periods, you need to think about what caused this and what actions to take.
We have considered how to calculate sales profitability using formulas. Each organization should periodically find and analyze these indicators.
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