What is the profitability of sales?

Profitability refers to the relative indicator characterizing economic activity. This indicator in the complex reflects the efficiency of the use of labor resources, cash, tangible assets and natural resources. The profitability is calculated as the ratio of the profit received for the period of time to the assets forming it. Profitability of sales is the main component of any business model. Formulas for calculating profitability can be seen in any training manual on financial management. However, not every beginning entrepreneur counts how to determine the profitability of sales. As a result, it often turns out that capital is not invested in a profitable business and the expected revenues are not received. That is why it is almost impossible to build business plans and implement any strategy of an enterprise without calculating the profitability factor.

The main indicators of profitability include:

- Product profitability ;

- profitability of sales;

- profitability of available assets;

- profitability of fixed assets of the enterprise;

- coefficient of the basic indicator of profitability of the organization's assets;

- profitability of own available capital of the enterprise;

- profitability of invested capital;

- profitability of the total asset;

- profitability of net own assets;

- Profit Margin;

- profitability of the used and applied capital;

- profitability of business assets.

Thus, the profitability of sales is the coefficient that characterizes the share of the profit of the organization in one ruble received. Often the profitability index is calculated as the ratio of the actual net profit for a specific period of time to the volume of sales expressed in terms of money. Thus, the profitability of sales is defined as the ratio of the Net profit of the enterprise for a specific period to Revenue for the same period (profitability = net profit / revenue).

In addition to the above calculation formula, there are other options for calculating, but still use only profit data for their calculation. For example, instead of the net profit ratio, gross margin, profit before tax in the reporting period, profit before tax and interest, operating profit , etc. can often be used. The choice of a specific option depends only on the purpose of the analysis and certain conditions of the firm's work.

Profitability of sales is considered an indicator of the pricing policy in the enterprise and its ability to control costs. Differences in strategies and different product lines determine a wide variety of profitability ratios in different companies. Comparison of the quantitative indicators of profitability of two or more enterprises operating in the same market can show which of the enterprises focuses on the mark-up and which on the reverse side. It is very indicative to compare two different indicators - by gross profit and net. If the rate of net profit received is less than gross, it can be concluded from this that the profit is mainly formed mainly at the expense of the main or principal activity of the enterprise.

From all of the above, we can conclude that this concept - the main indicator for the normal operation of any enterprise. It reflects profitability and profitability, the level of return on the use of fixed assets, and therefore requires careful calculation. No businessman should neglect this important indicator of the economic activity of his enterprise, as, indeed, all other indicators.