The efficiency of your own business, as well as the effectiveness of the business of a trading company, is best evaluated in terms of profitability of sales. Indeed, very often the owners of the enterprise take the increase in gross turnover as an indicator of success. However, in practice, only profitability reflects the real picture of affairs.
It is necessary
- - indicators of the company's economic activity;
- - calculator.
Instructions
Step 1
The profitability of sales is expressed in a certain ratio, the dynamics of which you can compare in different reporting periods. First, define the period over which you will calculate your ROI, for example, a year or a quarter. Determine the two main values needed to find this ratio: net income and total sales. Net profit is the part of gross profit that remains on the balance sheet net of tax (after all tax deductions and contributions to the budget). It serves for the payment of dividends to shareholders, the renewal of fixed assets and the development of the enterprise.
Sales revenue is the entire amount of income received as a result of the sale of goods, services and works.
Step 2
Once you have calculated these two values, you can determine the return on sales ratio. Divide the net profit by the sales proceeds, and you will find out the profitability. Let's say the sales proceeds for the year before last were 3.5 million rubles, and the net profit was 900 thousand rubles. Thus, the return on sales ratio = 0.9/3.5 = 0.2571, that is, 25.71%. And last year the proceeds from sales amounted to 3, 7 million rubles, and the net profit - 950 thousand. The profitability ratio is 25, 67%. This example clearly demonstrates that an increase in revenue and net profit does not mean an increase in profitability, since the profitability ratio has decreased by 0.04%.
With this data, business leaders can make decisions to optimize the business and find the reasons for the decline in profitability.
Step 3
For a more complete picture of the company's performance, calculate the return on sales at several levels. For example, for a single product group or for each major customer. This technique will allow you to draw more accurate conclusions about the prospects for work. Perhaps you are ditching certain products or optimizing your customer base.
