The concept of return on sales
Profitability of sales is an indicator that reflects the desired share of the net profit in a sales organization.
Without profitability, it is difficult to understand how well the company operates, whether it is profitable or unprofitable, effectively or not, how it will develop in the future, and that the moment should be taken to increase income while reducing unnecessary costs. The calculation of profitability helps to identify the effectiveness of the organization's activities in sufficient detail.
The profitability calculation is made:
- to monitor the profits of the enterprise;
- to monitor the development of the business;
- for comparison with the net profit of the companies-competitors;
- to determine profitable and unprofitable sales.
To more clearly understand what is net profit, and how to overcome it in the shortest possible time, consult a fairly common formula for profitability.
Formulas for the analysis of profitability of sales
It is important to understand that it is not necessary to have sverhsposobnostyami mathematical knowledge to calculate the formula and to know the profitability of your company. It is very simple and is as follows:
ROS = NI : NS,
where ROS (with English Return on Sales) ROI (return on sales enterprises
NI (with English Net Income) – net profit of that particular currency,
NS (with English Net Sales) – revenue net of all sales organizations.
To know the profitability, you need the net profit split on all revenue overall. And then, the obtained figure will be perfectly visible.
Another well-known formula for calculating gross profit to net sales subject to the value added tax is:
ROS = GP : NS
In this case, the net profit is the main component in gross profit GP (with English Gross Profit), which yields eventually the desired result.
The results of the analysis of profitability of sales
Regularly making the cost-benefit analysis, can reveal a lot of necessary and very useful information. In particular, to understand the development of the production company, to identify its effectiveness, to understand you need to tweak and what to leave unchanged.
Based on the fact that nothing is more important than ever to increase their income, the calculation of profitability should be regularly conducted and record all the results necessary.