What is the profit margin?

profitability is called a relative measure of the economic activity.This figure reflects the complex resource efficiency of labor, money, physical assets and natural resources.It is calculated as the ratio of the resulting margin for the period came to form its assets.Return on sales - the main component of any business model.The formulas for the calculation of profitability can be seen in any textbook on financial management.However, not every aspiring entrepreneur calculates how to determine the profitability of sales.The result is often that the capital invested is not a profitable business, and the expected returns are not received.That is why building business plans and implement any business strategy without calculating the coefficient of profitability is almost impossible.

The main profitability indicators include:

- profitability of production;

- return on sales;

- the profitability of existing assets;

- the profitability of fixed assets;

- rate benchmark of profitability of assets of the organization;

- return on existing capital company;

- return on invested capital;

- return on total assets;

- return on net assets of its own;

- profitability margins;

- return on capital employed and applied;

- return on assets of the business.

Thus, the profitability of sales - a factor that characterizes the share of income received by the organization in a single ruble.Often the profitability index is calculated as the ratio of actually received during the period of net profit over a specified period of time in terms of sales, expressed in monetary terms.Thus, the profitability of sales is defined as the ratio of net profit over a specified period to the revenue for the same period (margin = net profit / revenue).

addition to the above calculation formula, there are other options for calculation, but still used for their calculation only data on income.For example, instead of the net profits can often be used gross margin, profit before tax in the reporting period, earnings before taxes and interest and other operating income.Selection of a particular embodiment depends on the purpose of analysis and specific operating conditions of the company.

Return on sales is considered an indicator of the pricing policy of the company and its ability to maintain control of costs.Differences in policies and different product lines define a wide variety of indicators of return on different companies.Comparison of quantitative margins of two or more companies operating in the same market, may show some of the companies focuses on the margins, and some on the back.Very revealing comparison of the two different indicators - gross and net profit.If the rate of net profit is less than the gross, then it can be concluded that the profit is mainly generated mainly by primary or main activities of the enterprise.

From the above it can be concluded that this concept - the main indicator for the proper functioning of any enterprise.It reflects the profitability and yield, rate of return on fixed assets, and therefore requires careful calculation.No entrepreneur should not neglect this most important indicator of economic activity of the enterprise, as well as, indeed, all other indicators.