Return on Sales = (Sales Profit) / (Sales Revenue) * 100%
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By analyzing this parameter, we can understand what profit each ruble of sold goods will bring to the company. As a rule, the calculation is based on information from the organization's financial report. In this case, the formula for calculating profitability will look like this:
Return on sales = (line 2200 Form 2 (OFR)) / (line 2110 Form 2 (OFR)) * 100%
Example. Limited Liability Company "X", according to 2023 data, had a profit from the sale of manufactured products (line 2200 of the Financial Performance Report) of 345,010 thousand rubles, and revenue for the same reporting period was equal to 6,315,431 thousand rubles (line 2110 of the Report). The same data for another reporting period (2020) are:
sales revenue = 6,435,022 thousand rubles;
profit from sales = 477,834 thousand rubles;
Return on sales for 2023 was 345,010 / 6,315,431 x 100% = 5.46%;
Return on sales for 2020 = 477,834 / 6,435,022 x 100% = 7.42%.
Example of Key Performance Indicator Analysis
Source: freepik.com
Thus, we see that there is a negative trend - the profitability indicator is going down. This happens because the profit declines faster than the decrease in total revenue. The company's managers must conduct a timely analysis of product pricing, evaluate the marketing policy, and more strictly control the organization's expenses.
Stages of assessing the effectiveness of enterprise activities
The company's performance is checked in several stages.
Step 1: Calculate and analyze overall profitability indicators, which reflect how efficiently the company is conducting production activities.
The efficiency of doing business is calculated as follows:
Business profitability = Net profit / Sales revenue × 100%;
The profitability of goods sold is determined as follows:
Return on sales = Sales profit / Cost of sales x 100%.
Step 2: Identify and analyze overall profitability parameters that show whether the company is effectively managing its available resources.
Efficiency of using current assets:
Return on current assets = Net profit / Average cost of current assets × 100%;
Efficiency of distribution of funds not related to working capital:
Return on non-current assets = Net profit / Average value of non-current assets × 100%;
Efficiency of using equity capital (determines the quality of the company's work in terms of personal funds):
Return on equity = Net profit / Average equity x 100%;
Efficiency of management of attracted investments:
Return on invested capital = Net income / (Average equity + Average long-term liabilities) × 100%;
Efficiency of using credit assets:
Return on debt = Net income / Average debt x 100%.