The company's profit is the main source of cash income for the company as a result of its activities. She is the main source of revenue for the company. The options for generating profits in the assets of the company are as follows:
- sale of goods, products;
- the provision of various types of services.
It should be noted that all expenses of the company that are associated with obtaining the above sources of income are not included in the concept of profit. The main goal of the company is to maximize profits.
The main indicator of the effectiveness of any business is the profit from sales. Profitability and efficiency, the direction of cash flows, as well as asset turnover may depend on its size.
The concept
Under the profit from sales understand the indicator, which is able to assess the activities of the company and the level of its effectiveness. The amount of profit should be sufficient to cover costs and normal activities.
To analyze the effectiveness of the company take the values of profit from sales for the past period and compare them with the reporting data. On the dynamics of conclusions. If the indicator has grown over the reporting period, then the company's effectiveness is evident.
In general, the indicator under study is the difference between gross income and the cost of selling products (goods).
You can associate the indicator of profit from sales with the value of operating profit in international practice, that is, with the profit that the company produces in the market in the process of functioning.
The concept of "sales" in this case implies not only profit from operations in the direction of trade, but also any other types of sales with the conclusion of transactions and sales contracts with partners.
The profit indicator from sales allows you to assess the amount of profit that the company received for the period of operation for its core business, as enshrined in the charter.
Differences between revenue and profit
The table below shows the main differences between the company's revenue from the concept of its profit.
Compare the profit from sales and revenue from sales.
Revenue | Profit |
Revenues from activities are summarized | Possible options: general, clean |
The ability to be virtual (for example, in installments) | It is determined only after the funds are actually received and taken into account |
For the calculation, a summation of all funds that were earned by the company is carried out | When calculating from the earnings of the company deducted expenses |
The relationship here is this: we remove costs and expenses from revenue, we make a profit. We multiply the price of the goods by the natural sales volume, and we get the revenue.
Formula for calculating
To determine the profit from sales and the formula for its calculation, we present the following dependence:
VP = B - C,
Where VP is an indicator of gross profit, i.e.
B - total revenue, i.e.
C - the total costs of the company, i.e.
In a more visual embodiment, the formula is as follows:
Pr = B - UR - KR,
where - the amount of gross profit of the company, TR
Pr - the amount of profit from sales, i.e.
SD - the amount of management expenses, i.e.
KR - the sum of business expenses, t.
In turn, gross profit is the difference between the revenue received by the company and the expenses incurred:
B = Vyr - Seb,
where Vyr is the amount of revenue received, i.e.
Seb - the amount of expenses incurred (cost), i.e.
Thus, in order to correctly calculate the profit from sales, it is necessary to obtain accurate information about all amounts of income and about all amounts of expenses of the company for the study period.
Further calculations using the studied indicator relate to the concept of net profit, which can be determined:
PE = PR + PD - PRas - N,
where PE - net profit, TR
PR - profit from sales, i.e.
PD - other income, i.e.
Pras - other expenses, t.
N - income tax on sales, i.e.
Profit margin
The concept of profit from sales of goods is closely related to the definition of marginal profit:
Pmarg = V - PZ,
where Pmarg is the sum of the marginal profit received, i.e.
In - the company's revenue, i.e.
PZ - the sum of the variable costs of the company, i.e.
Variable costs may include the following items:
- the salary of workers associated with the manufacture of products (their sale), that is, the main ones;
- production costs of raw materials for the manufacture of products;
- payment of costs for electricity, gas, etc.
Marginal profit is directly related to the volume of production of the company, so, with their growth, the amount of profit will also grow. This type of profit provides opportunities to cover costs in terms of fixed costs.
Intrinsic factors
Since profit is the main source of company’s income, it is necessary to carefully study all the factors that can increase (or reduce) it. Among all factors, we can distinguish both external and internal.
Among the internal factors we single out:
- The sales volume of the product, which is associated with the profitability of sales. With high profitability of sales and growth in sales, profit from sales is also growing. Otherwise, if profitability is low, then growth in sales will lead, on the contrary, to a drop in profits.
- The structure of the assortment list.
- The cost of goods (here the inverse relationship: with rising costs, profit falls).
- The cost of goods (with its growth, profit grows).
- Amount of business expenses.
External factors
Among the external factors highlighted:
- depreciation and accrual policies;
- government bodies and their influence;
- natural features;
- general market sentiment (demand, supply level, etc.)
The growth in sales in physical units always contributes to the growth of profits from the sale of the company, and hence financial growth. In the case of sales of unprofitable goods, profit is directed downward. Profit growth can also be ensured by the growth in sales volumes of profitable goods in the structure of the assortment of production volumes, which leads to an improvement in the financial condition of the company. If the share of low-profitable products (or unprofitable) is higher in the sales structure, then profit also falls.
A fall in the level of cost and costs contributes to an increase in the level of profit from sales, while an increase in expenses helps to reduce profits. Profit from sales and cost are inversely related to each other. Such expenses, in particular, include commercial and managerial.
The dynamics of prices for sold products has a significant impact on the level of profit. A rise in prices leads to an increase in sales volumes, and hence an increase in profit from sales. In the opposite situation, a decrease in prices leads to a decrease in the company's revenue, as well as a drop in profit volumes.
The company's management is able to influence all of the above factors in the direction of reducing the impact of negative ones. As a result of their impact, profit or loss from sales is formed.
The application of factor analysis techniques makes it possible to show the reserves for growth in sales efficiency and determine the optimal management decisions. For this purpose, use the data from the "Report on financial results".
It is very difficult for an enterprise to influence external factors, since they are determined by the state of the company's sales market. Directly, these factors are not able to influence the profit of the company, their effect is indirect.
Examples
Analysis of profit from sales is carried out on specific examples.
Example 1. The company Astra LLC received the following performance indicators for 2017:
- revenue amounted to 100,000 tons;
- the cost amounted to 85,000 tons
You must calculate the gross profit from the sale of the company.
The formula for the calculation is as follows:
Gross profit = Revenue - Cost,
Gross profit = 100,000 - 85,000 = 15,000 tons
Gross profit amounted to 15,000 tons.
Example 2. The company Klima LLC for the year 2017 sold 1,000 units of goods at a price of 500 rubles. The cost of one unit of goods amounted to 350 rubles. The total cost of sales amounted to 15,000 rubles. It is necessary to determine the profit from the sale.
To solve, we find the total revenue from the sale of goods:
1000 * 500 = 500 000 rubles.
Define the total cost (cost):
1000 * 350 = 350 000 rubles.
We calculate the value:
Profit from sales = Revenue - cost - sales costs = 500,000 - 350,000 -15,000 = 135,000 rubles.
Thus, the amount of the sought indicator amounted to 135,000 rubles.
Where to find reporting
In the company's reporting forms, the profit indicator is reflected as follows:
- there is no profit from the sale in the balance sheet;
- the profit in the “Statement of financial results” is reflected in line 2200.
The fact that there is no line in the balance sheet to indicate this profit is due to the fact that the balance sheet is based on the grouping of assets and liabilities of the company according to the degree of urgency. Balance sheet is a document that characterizes the financial position at a specific date.
"Report on financial results" involves the accumulation of financial results of the company for a certain period of time. It classifies income and costs by direction.
The calculation of profit from sales according to statements is as follows:
Line 2200 = Line 2100 - Line 2210 - Line 2220
Calculation according to accounting
The amount of the studied indicator can be determined according to the company's accounting:
Profit from sales = Credit turnover of the subaccount 90-1 “Revenue” - Debit turnover of the subaccount 90-2 “Cost of sales”
In subaccount 90-2 reflects the cost of production, as well as selling and administrative expenses.
Analytical accounting for this subaccount ensures the division of costs into separate accounts so that it is possible to identify the amount of business expenses, management costs.
Conclusion
In modern conditions of market functioning, there is a high degree of segmentation. The company needs to choose the sphere of activity in which it will be able to get a decent share of the local market, bypass competitors and increase its profit, profitability.
In this case, the sales profit indicator acts as the main indicator of the effectiveness of applying the company's existing capital, its assets, managerial methods and marketing promotion tools in the selected segment. Therefore, this indicator is defined as the main indicator of the effectiveness of the enterprise in a certain field of activity.