Sales profit formula and application examples

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

The profit of the company is the main source of cash receipts of the company as a result of its activities. It is the main source of income for the company. Options for the receipt of profits in the assets of the company are as follows:

• sale of goods, products;
• provision of various kinds of services.

It should be noted that all the costs of the company, which are associated with the receipt of the above sources of income, are not included in the concept of profit. The main goal of the company is to maximize profits.

The main indicator of the effectiveness of any business is the profit from sales. Profitability and efficiency, the direction of cash flow, as well as asset turnover may depend on its size.

Concept

Profit from sales is understood as an indicator that can evaluate the company's activities and its level of efficiency. The amount of profit must be sufficient to cover expenses and carry out normal activities.

To analyze the effectiveness of the company take the values of profit from sales for the previous period and compare them with the reporting data. By dynamics doconclusions. If the indicator has grown during the reporting period, then the company's efficiency is evident.

In general, the indicator under study is the difference between gross income and the cost of selling products (goods).

It is possible to associate the indicator of profit from sales with the value of operating profit in international practice, that is, with the profit that the company produces in the market in the process of operation.

The concept of "sales" in this case implies not only profit from operations in the direction of trade, but also any other types of sales with the conclusion of transactions and sales agreements with partners.

The indicator of profit from sales allows you to evaluate the amount of profit received by the company for the period of operation on its core business, enshrined in the charter.

Differences between revenue and profit

The table below shows the main differences between a company's revenue and its profit concept.

Compare sales profit and sales revenue.

Revenue	Profit
Receipts from activities are summed up	Options: general, net
The ability to be virtual (for example, with installments)	Determined only after funds are actually received and accounted for
To calculate, the sum of all the funds that were earned by the company	Expenses are subtracted from the company's earnings when calculating

The relationship here is as follows: we remove expenses and expenses from the proceeds, we get a profit. We multiply the price of the goods by the natural volume of sales, we get the proceeds.

Formula for calculation

To determine the profit from sales and the formula for its calculation, let's imagine the following relationship:

VP=B - C, Where VP is an indicator of gross profit, t. R.

B - total revenue, t. R.

С - total costs of the company, t.r.

In a more visual version, the formula looks like this:

R=B - UR - CR, where B is the sum of the company's gross profit, tr.

Pr - the amount of profit from the sale, t. R.

UR - amount of management expenses, t.r.

KR – amount of selling expenses, t.r.

In turn, gross profit is the difference between the revenue received by the company and the expenses incurred:

B=Ex - Seb, where Vyr is the amount of proceeds received, t. R.

Sat - the amount of expenses incurred (cost), t. R.

Thus, in order to correctly calculate the profit from sales, it is necessary to obtain accurate information about all amounts of income and all amounts of expenses of the company during the study period.

Further calculations when using the studied indicator relate to the concept of net profit, which can be determined:

PE=PR + PD - PRs - N, where NP is net profit, tr.

PR – profit from sales, t.r.

PD - other income, i.e. R.

Pras – other expenses, t.r.

Н - tax on profit from the sale, t.r.

Marginal profit

The concept of profit from the sale of goods is closely related to the definition of marginal profit:

Pmarzh=V - FZ, where Pmarzh is the amount of marginal profit received, t.r.

B - company's revenue, t.r.

PV - the sum of the company's variable costs, t.r.

Variable costs may include the following items:

• salary of workers associated with the manufacture of products (its sale), that is, the main ones;
• manufacturing costs for raw materials for manufacturing products;
• paying the cost of electricity, gas, etc.

Marginal profit is directly related to the volume of production of the company, so, with their growth, the amount of profit will also grow. This type of profit provides opportunities to cover expenses in terms of fixed costs.

Internal factors

Since profit is the main source of income for the company, it is necessary to carefully examine all the factors that can increase (or decrease) it. Among all factors, both external and internal can be distinguished.

Among internal factors, we highlight:

• The volume of sales of goods, which is associated with the profitability of sales. With a high profitability of sales and an increase in sales, the profit from sales also grows. Otherwise, if the profitability is low, then the growth in sales will lead, on the contrary, to a drop in profits.
• Assortment structurelist.
• Costs of goods (there is an inverse relationship: with an increase in costs, profit falls).
• The cost of the goods (if it grows, so does the profit).
• Amount of business expenses.

External factors

Among the external factors highlighted:

• depreciation and accrual policy;
• government bodies and their influence;
• natural features;
• general market sentiment (demand, supply level, etc.)

Growth in sales volumes in natural units always contributes to the growth of profit from the sale of the company, and hence financial growth. In the case of sales of unprofitable goods, the profit is directed downward. Profit growth can also be ensured by an increase in the volume of sales of cost-effective goods in the structure of the product range, which leads to an improvement in the financial condition of the company. If the share of low-margin products (or unprofitable) in the sales structure is higher, then the profit also falls.

Falling cost and costs contribute to an increase in the level of profit from sales, rising costs contribute to a decrease in profits. Profit from sales and cost are inversely related to each other. Such expenses, in particular, include commercial and administrative expenses.

The dynamics of prices for sold products has a significant impact on the level of profit. An increase in prices leads to an increase in sales volumes, and hence an increase in profits from sales. In the opposite situation, a decrease in prices leads to a decrease in the company's revenue, as well as a drop in profits.

The management of the company is able to influence all the above factors in the direction of reducing the impact of negative ones. As a result of their impact, profit or loss from sales is formed.

The use of factor analysis techniques makes it possible to show the reserves for increasing sales efficiency and determine the optimal management decisions. For this purpose, data from the "Report on financial results" is used.

It is very difficult for an enterprise to influence external factors, as they are determined by the state of the company's sales market. Directly, these factors are not able to influence the profit of the company, their action is indirect.

Examples

We analyze the profit from sales using specific examples.

Example 1. Astra LLC received the following performance indicators for 2017:

• revenue amounted to 100,000 tr.;
• cost was 85,000 t.r.

Need to calculate the gross profit from the sale of the company.

The formula for calculating is as follows:

Gross Profit=Revenue - Cost, Gross profit=100,000 - 85,000=15,000 t.r.

Gross profit of 15,000kr.

Example 2. In 2017, Klima LLC sold 1,000 units of goods at a price of 500 rubles. The cost of one unit of goods was 350 rubles. The total cost of selling products amounted to 15,000 rubles. It is necessary to determine the profit from the sale.

To solve, let's find the total revenue from salesitems:

1000500=500,000 rubles.

Determine the total costs (cost):

1000350=350,000 rubles.

Calculate the value:

Profit from sales=Revenue - cost - sales expenses=500,000 - 350,000 -15,000=135,000 rubles.

Thus, the amount of the desired indicator was 135,000 rubles.

Where to find it in the reporting

In the company's reporting forms, the profit indicator is reflected as follows:

• no profit from sales in the balance sheet;
• profit in the Statement of Financial Performance is reflected in line 2200.

The fact that there is no line in the balance sheet to indicate this profit is due to the fact that the balance sheet is based on the grouping of the firm's assets and liabilities by maturity. The balance sheet is a document that characterizes the financial position on a specific date.

"Report on financial results" involves the accumulation of financial results of the company for a certain period of time. It classifies income and expenses by direction.

Calculation of profit from sales according to reporting is as follows:

Line 2200=Line 2100 - line 2210 - line 2220

Calculation according to accounting data

The amount of the studied indicator can be determined from the accounting data of the company:

Profit from sales=Credit turnover of subaccount 90-1 "Revenue" - Debit turnover of subaccount 90-2 "Cost of sales"

Sub-account 90-2 reflects the cost of productionproducts, and selling and administrative expenses.

Analytical accounting for this sub-account provides a division of costs into separate accounts in order to be able to identify the amount of commercial expenses, management costs.

Conclusion

In today's market conditions, there is a high degree of segmentation. The company needs to choose the area of activity in which it can get a decent share of the local market, outperform competitors and increase its profits and profitability.

The indicator of profit from sales is the main indicator of the effectiveness of the use of the company's available capital, its assets, management methods and marketing promotion tools in the selected segment. Therefore, this indicator is defined as the main indicator of the effectiveness of an enterprise in a particular area of activity.