How to calculate the profitability of sales

Among economic categories, profitability and profit are of particular importance, two indivisible indicators, on the basis of which one can judge the level of efficiency of economic activity conducted by the enterprise. It is common knowledge that profit in money terms is the difference between the enterprise's incomes and expenses, which it incurred in the course of its activities. Undoubtedly, profit is an indicator of how profitable the implementation of a particular activity. At the same time, profit directly depends on profitability - no less important economic indicator. If the calculation of profit usually does not cause difficulties even for start-up entrepreneurs, then it is not everyone, even the experienced manager of the enterprise, who can answer the question how to calculate profitability of sales, leaving this function for accounting. Meanwhile, knowledge of how the profitability of sales is calculated can be of great service to the manager-only knowing this indicator, one can assume that the picture of the enterprise's activities is fully disclosed, and without this, successful planning and regulation of activity is impossible. That is why below we will consider how to calculate the profitability of sales by the simplest method.

So, the instruction that gives an answer to the question how to calculate the profitability of sales and profit:

First, it is necessary to understand what profitability and profit are inseparably related to it. Profit is the expression of the final financial result, which reached the enterprise in monetary terms. Profitability is called a relative indicator, which also reflects the financial result.

One of the basic theories that explains the emergence of profit is the theory of surplus value created by Karl Marx. K. Marx argued that surplus value, transformed into revenue in the process of selling goods, creates the stage of production. The means of creating surplus value is a specific commodity - "labor". In other words, in Marx's opinion, surplus value is the value created by the labor of the worker in excess of the cost of labor (that is, wages).

At the same time, profits can not be equal to surplus value, since most of it is spent on payment of workers' wages, and other expenses. Therefore, the definition of the transformed form of surplus value is applied to profit.

There is a gross (total) and net profit (the amount that remains after all payments).

Gross profit can be calculated by subtracting from the net income received from the sale of goods and services the cost price of these goods or services.

Net profit can be calculated by subtracting from gross profit the amount of production costs and the amount of all taxes and other expenses.

Profitability is a relative indicator of the level of efficiency with which economic activity is conducted. This indicator is calculated as a percentage. To calculate the profitability ratio, it is necessary to divide the indicator of the received profit by the indicator of assets (resources) that form it.

Profitability indicators are quite diverse and are represented by the profitability of fixed assets, the return on assets, the return on capital, the profitability of production, the profitability of sales and some others.

The latter indicator is very important, so consider how to calculate the profitability of sales and why this is important.

Based on the profitability of sales, one can judge the share of profit in each monetary unit that was earned by the enterprise. To calculate this indicator you need to divide the net profit by the sales volume.

We hope, now you know how to find the profitability of sales.