# How to calculate and analyze the profitability of products?

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In the normal course of business, most companies producing a particular type of product.Of course, the organization can perform work or provide services, but essentially it does not change.Employees of businesses use certain raw materials or something like that, carry with them certain actions as a result, and this is the product obtained.Then it must be sold to recover costs and make a profit.Of course, this description is very arbitrary, but the meaning is very clear.During the production process, the company carries the costs, and as a result want to make a profit.The relationship between these values ​​is reflected by indicators of profitability, one of which is the profitability of sales.

So, first decide on how to find the product profitability, which was sold by the company.For this only need to divide the profit on the cost price.But the problem is precisely that, what types of profit and cost must be included in the calculation.Let's start with the numerator, that is profit.Of course, the vast majority of indicators of profitability calculated on the basis of net profit.Profitability of sold products to you, too, no one will disturb calculated in this way, but it is not quite true.The fact that the effect on net income and other income and expenses that do not have to sell products in any way.In this regard, much more so will use the profits from sales, you can easily find in the financial statements.

We turn to the denominator of the fraction which represents the production cost.Since we evaluate the profitability of sales, then it should use the same cost price.But not so easy, because the cost of production or may be complete.Between them to make a choice is also very simple.Production costs do not include costs associated with product sales, so this value can not be used for our purposes.Thus should be included in the calculation is the full cost, which consists of both production costs and on the implementation.

defined the calculation method, we can finally move on to the economic meaning of the indicator.Profitability of sales shows that how much profit the company receives each ruble, which was embedded in the formation of the full cost of production.This indicator combines an efficiency of not only production, but also the implementation.Therein lies the value of this kind of profitability.

should mention a few indicators that are largely similar to the already considered.When used in the calculation of cost of production, we will be able to assess exactly how effective a company's production activities.Obviously, this figure is greater than the previous, as the denominator not satisfy all costs.

And if the denominator is not only to take into account all costs, but also add a profit, we will get there the value of proceeds.The calculations we define the value of return on sales, which characterizes the share of the proceeds of the profits earned by the company by selling its products.

feature of all these figures is that their estimates are not used normative comparisons.The most effective methods of studying the cost-effectiveness analysis is horizontal, representing an analysis of the dynamics as well as compared to the same companies, and with the average for the sector to which the company in question.