One of the significant economic indicators of the effective activity of the enterprise is profit. It is this quantity, the dynamics of its relationship with other key coefficients that enables the economist to analyze the effectiveness of the enterprise development strategy. Profit makes it possible to invest in expanding production, improving product quality, providing employees with a package of social benefits, and much more.
Enterprise management should strive to maximize benefits. This formula will tell you about the profit formula from sales, the factors that influence it.
The essence of the indicator
The profit of enterprises in the broad sense is an economic category, which is a monetary expression of the benefits received by the organization.
However, for the possibility of a comprehensive economic analysis, the following types of this indicator are distinguished:
- Gross.
- Sales profit.
- Profit from operations outside of sales.
- Balance sheet.
- Taxable.
- Clean.
It should be noted that each organization, depending on the goals that are set before the economic analysis, can take on other forms of profit.
The concept
Factor analysis in enterprises is usually subjected to profit from sales as the most informative indicator. It is part of the gross and different from it in the amount of costs for the sale of goods (business expenses) and management deductions. Profit from sales is an economic indicator not only of trade enterprises, as an ignorant layman might think, based on the name of the indicator. Production organizations are also faced with the concept of sales - they sell products.
Why is it most often analyzed precisely the profit from sales, and not gross or book, for example? When taking into account the total gross revenue, its value includes the expenses incurred by the enterprise for production (variable costs), sales of products (commercial deductions), as well as for ensuring the vital activities of the enterprise (fixed costs). Only having cleared the indicator of profit from losses, it is possible to obtain data for the most objective analysis.
It is also necessary to understand what list of key factors can affect the amount of revenue received as a result. The first step to factor analysis will be the specification of the sales profit formula. Indeed, the final quantity depends on the components of the indicator. It is worth noting that the sales profit formula used by the economic departments of different enterprises may differ depending on the accounting policy of the enterprise. About calculations in more detail in the next section.
Profit formula
How is this indicator calculated?
In most cases, to calculate profit from sales, the calculation formula is as follows:
PP = PV– RK, where PP is the profit from sales, PV is the gross profit, RK is the commercial expenses (all expenses associated with the sale, for example, delivery, advertising).
In the presented formula, profit from sales, one of the values, in turn, is also calculated. This is gross revenue. It is calculated by the formula:
PV = VP - PS, where B is the sales revenue, PS is the production cost.
Going deeper, you can decompose the components of production costs:
PS = PerR + PostR, where PerR - variable costs, PostR - fixed costs.
Given the above, you can get a more expanded formula for profit from sales, allowing you to take into account all the components of this indicator:
PP = VP - (PerR + PostR) - KR
As can be seen from the formula, the indicator of sales revenue is affected by many economic variables, it is the result of several areas of the organization, which once again confirms the importance of this economic value.
The concept of profitability from sales
Revenue in both economic and management accounting is expressed as an absolute value, usually in thousands of rubles. For enterprises with different sales volumes, the same amount of sales revenue can be both a bad and a good result.
To compare the economic indicator and revenue, a separate concept is introduced.
Return on sales profit is a value that shows how much the indicator in question represents in total revenue. Most often this is a percentage.
Return on sales: calculation formula
The formula for calculating the profitability of sales is completely based on the definition of an indicator:
RPP = PP / VP (%), where RPP is the profitability of profit from sales, PP is the profit from sales, VP is the revenue from sales.
A profit margin on sales of 8-10 percent is considered the norm. However, everything is individual.
An example of applying the formulas for profit from sales and profitability of profit from sales
The table below schematically shows the economic performance of Vegas LLC.
Sales revenue, calculated as the product of the price of a product by the quantity sold, amounted to 1,000,000 rubles. Variable costs - in the amount of 650 thousand rubles. Permanent - 190 thousand rubles. Costs of sales amounted to 50 thousand rubles.
The formula for calculating sales profit is described above. If you substitute the set values, the following is obtained:
PP = 1000 - (650 + 190) - 50 = 110 (thousand rubles)
In absolute terms, the revenue of Vegas LLC amounted to 110 thousand rubles.
Calculation of profitability of sales profit:
RPP = 110/1000 * 100% = 11%
The last calculation shows that the share of sales profit in revenue was 11 percent, this figure fits into the normative value.
Analysis
The sales profit formula itself gives a clear idea of what indicators affect this value.
An increase in income will occur if the number of transactions increases. Even if in this case variable costs increase proportionally (which is economically logical), it can be assumed that fixed costs will not grow, respectively, profit will increase. If the enterprise management succeeds in reducing commercial and fixed costs, revenue will also increase.
Managing an enterprise is a huge responsibility. Management plays the most important role and determines the course of development. Proper profit management is one of the most important aspects of successful organization management.