Calculate profit formula. The essence of net profit and its correct calculation

Gross profit— this is one of the main indicators characterizing the results of the company’s economic activities. Calculating gross profit - the formula is presented in our article - allows you to highlight promising areas of business activity and redistribute financial flows to obtain a more effective result.

What items are used in the gross profit formula?

Depending on what types of activities the company includes in the list of its main ones (this is fixed in the accounting policy), the items of income and expenses included in its revenue and cost, and therefore in the formula for calculating gross profit, will differ, for example:

1. The revenue of a manufacturing company is determined by the sales of:

• manufactured products;
• works and services provided.

1. Sales revenue for a trading company is income from sales:

• purchased goods;
• paid trade services (for example, delivery of goods);

1. The income of the organization leasing the property will consist of rent.

However, if the accounting policy includes sales of the company’s property (for example, fixed assets, intangible assets, securities) as its main activities, then they will also be included in the calculation of gross profit.

The cost consists of expense items that correspond to the receipt of revenue from activities recognized as core. For example, it will include:

1. For a manufacturing company:

• cost of raw materials, materials, tools, fuel;
• production management costs;
• depreciation deductions.

1. For a trading company:

• cost of purchased goods;
• costs of delivery of goods upon purchase;
• salary with contributions to the Pension Fund, Social Insurance Fund, Compulsory Medical Insurance Fund;
• costs of storing goods and preparing them for sale.

1. For an organization leasing property:

• expenses for preparing property for rent;
• providing security;
• registration of documents related to the relevant property.

If the main types of activities also include those types of activities that usually fall into other sales, then the cost price for calculating gross profit will also include expenses associated with these types of activities (for example, the residual value of fixed assets, intangible assets, the book value of securities).

Results

Gross profit is a concept contained in PBU 4/99 and appears in connection with the financial results statement. It is calculated as the difference between sales revenue for main activities and the cost of these sales. At the same time, the cost does not include commercial, administrative and other expenses. The classification of activities as main ones is determined by the accounting policy.

The commercial activity of any company is aimed at generating profit, with the help of which losses incurred can be covered.

DEFINITION

Profit is called the “net” income that an entrepreneur receives from any type of activity. Revenue and profit are not equivalent concepts.

Profit can be called the main and most important financial indicator of a company’s economic activity. The efficiency of the company, its solvency and liquidity depend on the profit indicator. In addition, profit is a source of self-financing for the enterprise, which has a significant impact on the pace of production modernization and automation.

Profit formula

Profit can be calculated in several ways. The most common profit formula is to calculate gross profit:

Pval=V-S

Here Pval is gross profit,

B – revenue from the sale of goods,

C – cost of goods.

Based on the gross profit formula, sales profit is calculated:

Ppr=Pv-UR-KR

Here Ppr is profit from sales,

Pv – gross profit,

UR – management expenses,

KR commercial expenses.

The total profit from all activities can be calculated using the following formula:

Pvt=Pval+Pinv+Pfin

Here Total is the total profit,

Pval – gross profit,

Pinv – profit from investment activities,

Pfin – profit from financial transactions.

Taxable profit formula:

Pnal=Pob-N

Here Pnal is taxable profit,

Total – total profit,

N – taxes.

What does the profit formula show?

In the narrow sense profit formula represents the difference between revenue from the sale of a product and the costs of its production (sales). However, the concept of profit has a broader meaning, since the final result is obtained by adding the net income from different types of activities. For this reason, every business considers its profit structure.

The company's total profit may consist of several types of income:

• Profit from the sale of goods (services),
• Profit from side activities,
• Results of transactions with fixed assets and other property of the enterprise,
• Profit (loss) from non-operating activities (currency revaluation, sale of securities, etc.).

Profit functions

The profit formula is necessary for a successful analysis of the company's economic activities and a deeper concept of determining profit.

The most important functions arrived:

• Characteristics of the final result of the company’s activities,
• An indicator of the efficiency and stability of the company,
• Stimulating function, which manifests itself in the growth of wages, the rate of renewal of fixed assets, the introduction of new technologies due to the growth of enterprise profits,
• Formation of the state budget through the deduction of taxes from profits (fiscal function),
• Profit as an indicator of the need to take measures to optimize production (control function).

Types of profit

Profits are classified according to different types. For example, by source of formation profit can be:

• Implementation,
• From transactions with securities,
• Non-operating,
• From financial or investment activities, etc.

In accordance with calculation method used profit is:

• Gross,
• Marginal,
• Clean.

In accordance with nature of tax payment profit can be:

• Taxable income,
• Profit that is not subject to taxation.

Examples of problem solving

EXAMPLE 1

The main indicator reflecting the financial result of an organization’s functioning is profit. There are several basic types of profit, on the basis of which the enterprise development strategy is built.

Like any absolute indicator, profit reflects a specific value that cannot be compared with the results of other enterprises. But it is convenient to analyze profits over several periods.

Types of profit

Russian accounting identifies and accepts the following types of profit for tax purposes:

• revenue;
• gross;
• from sales;
• before tax;
• clean.

European microeconomics introduces two more types of profit into Russian practice – marginal and operating.

The basic indicator is, because it reflects the primary income of the enterprise. Next in order of decrease is (minus variable costs), (minus technological cost), from sales (minus full cost), (minus other expenses with the addition of other income and interest payable), (minus other expenses with the addition of other income), (net of taxes).

How to calculate enterprise profit

All types of profit are calculated on the basis of revenue, which is equal to the product of sales volume and unit price. Certain cost items are subtracted from primary income and thus each type of profit is found.

General calculation formulas

Revenue is found using the following formula: TR = P * Q, Where

P (price) – price, rub.;

Q (quantity) – quantity of products, rub.

Marginal profit is equal to: MP = TR – VC, Where

MP (marginal profit) – marginal profit, rub.;

TR (total revenue) – revenue, rub.;

VC – variable costs for production volume, rub.

Gross profit can be found using this formula: GP = TR – TC tech, Where

GP (gross profit) – gross profit, rub.;

TR (total revenue) – revenue, rub.;

TC tech (total cost) – technological cost, rub.

RP = TR – TC, Where

RP (realization profit) – profit from sales, rub.;

TR (total revenue) – revenue, rub.;

TC (totalcost) – total cost, rub.

Balance sheet profit is equal to: BP = RP – OE + OR, Where

RP (realization profit) – profit from sales, rub.;

OR (other revenue) – other income, rub.;

OE (other expenses) – other expenses, rub.

OP = BP + PC, Where

BP (balanced profit) – balance sheet profit, rub.;

NP = BP – T, Where

NP (net profit) – net profit, rub.;

BP (balanced profit) – balance sheet profit, rub.;

T (taxes) – tax burden, rub.

Balance calculation formulas

The calculation data is provided in the financial results statement. Available information from the financial statements allows you to calculate the two types of profit below using one formula.

Marginal and gross profit can be found using this formula: page 2100 = page 2110 – page 2120, Where

line 2100 – gross profit, rub.;

line 2110 – revenue, rub.;

line 2120 – technological cost, rub.

Profit from sales is as follows: page 2200 = page 2110 – (page 2120 + page 2210 + page 2220), Where

line 2200 – profit from sales, rub.;

line 2110 – revenue, rub.;

(line 2120 + line 2210 + line 2220) – total cost, rub.

Balance sheet profit is equal to: page 2300 = page 2200 – page 2350 + page 2340, Where

line 2200 – profit from sales, rub.;

line 2340 – other income, rub.;

line 2350 – other expenses, rub.

Operating profit is calculated using this formula: OP = BP + PC, Where

BP (balanced profit) – balance sheet profit, rub.;

PC (percent) – interest payable, rub.

Net profit is found as follows: page 2400 = page 2300 – page 2410, Where

line 2400 – net profit, rub.;

line 2300 – balance sheet profit, rub.;

line 2410 – amount of tax burden, rub.

Examples of calculations

The company Ekran LLC is engaged in the production of drills for milling machines. Financial statements for the last 2 years contain the following data:

For this example, for 2013:

Marginal profit: MP = TR – VC = 70,000 – 25,000 = 45,000 rubles

Gross profit: GP = TR – TCtechn = 70,000 – 25,000 = 45,000 rubles

Profit from sales: RP = TR – TC = 70,000 – (25,000 + 4,000 + 13,000) = 28,000 rubles

Balance sheet profit: BP = RP – OE + OR = 28,000 – 3,000 + 800 = 25,800 rubles

Operating profit: OP = BP + PC = 25,800 + 4,000 = 29,800 rubles

Net profit: NP = BP – T = 29,800 – 29,800 * 0.2 = 23,840 rubles

For 2014:

Marginal profit: MP = TR – VC = 130,000 – 45,000 = 85,000 rubles

Gross profit: GP = TR – TCtechn = 130,000 – 45,000 = 85,000 rubles

Profit from sales: RP = TR – TC = 130,000 – (45,000 + 6,000 + 18,000) = 61,000 rubles

Balance sheet profit: BP = RP – OE + OR = 61,000 – 2,000 + 1,000 = 60,000 rubles

Operating profit: OP = BP + PC = 60,000 + 6,000 = 66,000 rubles

Net profit: NP = BP – T = 60,000 + 60,00 * 0.2 = 48,000 rubles

Profit of an enterprise as a financial result of its activities

Each type of profit is necessary to solve certain problems. Without taking them into account, a full analysis of activities is impossible. Profit is a financial result and an absolute indicator.

In other words, it can only be used for internal needs. Strategy development is based specifically on the types of profit.

If it is necessary to compare with the activities of other organizations, then profit indicators cannot be used; instead, efficiency indicators are used, for example,

One of the main goals of entrepreneurial activity is to obtain maximum profits at minimum costs. Depending on the calculation method, profit is divided into several types. The most significant indicator of business performance is profit from sales.

Every business is always looking for options to maximize profits. To do this, you need, first of all, to understand how profit is formed, calculated, and what factors influence its size.

Why is the indicator needed?

Profit from sales is the resulting indicator of the functioning of a trading organization. It allows you to assess how effective the overall activities of the enterprise are and whether there is any point in carrying out these activities in the future (you can find out what business efficiency is and how to calculate it).

An enterprise must strive to ensure that the level of profit it receives is, if not maximum, then at least sufficient to continue normal operations.

The profit figure itself will not provide an accurate assessment of the situation, since it is simply a certain figure in value terms. Let's say your organization received a sales profit of 200,000 rubles in the reporting period. Is it good or bad? It is difficult to answer this question knowing only this figure.

In order to draw conclusions regarding the effectiveness of operation, You can compare the profit for the reporting period with previous periods. For example, last year it was 150,000 rubles. Knowing this, we can already say that profit has increased by 50,000 rubles, or 33.3%. That is, in the reporting year the enterprise worked more efficiently.

Another important indicator that is calculated using profit is return on sales. It allows you to estimate how much profit a company receives from its expenses (or how much profit can be obtained per 1 ruble of expenses).

To do this, you need to divide the amount of profit received by the total sales volume (expressed in monetary terms). The normal value of this indicator is 8-10%. If profitability is lower, then it makes sense for the company to consider options for increasing profits. The amount of profitability and profitability in general also depend on the scope of the business.

Formula

When calculating profit from sales, a formula is used in which the indicator is recognized as the difference between gross profit and expenses (administrative and commercial). In turn, gross profit is the difference between sales revenue and cost of sales. The last indicator includes only those costs that were incurred directly for the sale of goods.

Let's put this in the form of a formula:

Prpr = Vpr – UR – KR, where:

• Prpr – profit from sales;
• Vpr – gross profit;
• UR, KR – administrative and commercial expenses.

Vpr = In – Sbst, where:

• In – total revenue;
• Cbst – cost of goods sold.

Let's look at a small example. Let's say a company sells household appliances. In the reporting year, 2,000 vacuum cleaners were sold at a price of 5,000 rubles. Total revenue will be:

In = 5000 * 2000 = 10,000,000 rub.

The cost of one product is 3300 rubles, all products:

Sbst = 3300 * 2000 = 6,600,000 rub.

Selling and administrative expenses – 840,500 and 1,450,500 rubles, respectively.

First, let's determine the amount of gross profit:

Prv = 10,000,000 – 6,600,000 = 3,400,000 rub.

Let us calculate the profit from the sale of products:

Prpr = 3,400,000 – 1,450,500 – 840,500 = 1,109,000 rub.

If you subtract other expenses and all taxes from sales profits, you get net profit.

What affects sales profit?

To find reserves for increasing profits, you need to understand what it depends on. On the amount of profit received in a certain period, influenced by two groups of factors - internal and external.

The first group includes those indicators that are used to calculate profits:

1. Volume of sales products. If you focus on selling products with high profitability, your profit margin will increase. If you increase the volume of sales with low profitability, the profit margin will decrease.
2. Cost price) products sold. The dependence is directly proportional: the price rises - the profit increases, the price decreases - the profit becomes less.
3. Assortment structure products that are sold. The dependence is the same as with volume - with an increase in the percentage of the most profitable products from total sales, profit will increase, with an increase in products with low profitability, on the contrary, it will fall.
4. Cost price. When the cost of a product decreases, profit increases, and when it increases, vice versa. Cost reduction is possible by changing materials and raw materials, which can lead to deterioration in quality.
5. Management costs, business expenses. The dependence is the same as with cost.

The enterprise has the opportunity to influence these factors and change them at its discretion.

External factors - it is the state of the market environment in which sales are made. The company is unable to change its conditions. These factors include:

• the amount of deductions for depreciation (read more about what a depreciation bonus is and how it is reflected in accounting);
• the cost of those materials and raw materials that are used in the manufacture of products (for the production sector);
• market condition – the supply-demand ratio for a product (conjuncture);
• natural conditions, the impact of force majeure and unforeseen circumstances;
• government policy - fines, benefits, interest and tax rates, etc.

These factors do not directly affect profits. The cost and volume of products that were sold depend on them.

Some ways to increase the indicator

There are two main and simplest methods for increasing sales profits: This is either an increase in the volume of products or a reduction in the costs of its production and sale.

Since sales profit depends primarily on sales volume, you can go the intensive route and simply increase product sales volumes. During the analysis, you need to find out which product sells best and how profitable its sale is.

If its profitability is high and demand is low, then it needs look for ways to stimulate sales– conduct an advertising campaign, find new target audiences, change the design or some characteristics of the product. The more customers you can attract, the greater your profit will ultimately be.

If the product being sold is also produced at the enterprise, then profits can be increased by reducing costs. To do this, you need to find cheaper materials and raw materials (either of worse quality, or by changing suppliers). Material costs account for up to 80-90% of the total cost, so if you save on materials, the final result will be significantly less. Another effective way is to optimize labor processes (automated production, introduction of new technologies).

How to calculate the profit from sales of products in the planning period?

When planning their work, enterprises must also take into account the amount of expected profit. To calculate it, you need to know what product we will sell, at what price and in what volumes (planned).

The easiest way to plan this is calculation using the profitability indicator. From the results of past periods there is already data on the profitability of products, and with its help it is possible to calculate the expected profit.

For example, next year the company plans to sell 1,500 products at a price of 400 rubles per piece. The return on sales of this product is 12%. This means that the expected profit will be:

Prpr (plan) = 1500 * 400 * 12% = 72,000 rubles.

There are also many analytical and financial programs that allow you to make a more accurate forecast, taking into account all factors. To obtain the most reliable result, you need to provide as much data as possible and take a wide time sample (at least several previous years). At the same time, current economic conditions (inflation, changes in legislation, level of demand for goods, etc.) must be taken into account in the calculations.

Calculation and analysis of profitability of activities is an important element of business management. In small organizations, this work will not take much time and money; the simplest method of calculation can be done by the manager. But the results will appear immediately - in the form of increased efficiency and increased profits.

For more information on the topic, watch the video.

Profit margin is a key indicator of financial analysis, which allows you to understand whether a business pays for itself and how effectively. You will need to calculate this indicator to draft a high-quality business plan, monitor cost dynamics, adjust prices for products or services, as well as for a general assessment of the profitability of your company in the analyzed period. Profit margin is usually expressed as a percentage, and the higher the percentage, the more profitable the business is.

Steps

Part 1

Profit margin calculation

Understand the difference between gross profit margin, gross profit margin and net profit margin. Gross profit is the difference between revenue from the sale of goods or services and their cost. Its calculation does not take into account commercial, administrative and other expenses; only those costs that are directly related to the production of goods or the provision of services are taken into account. Gross profit margin is the ratio of gross profit to revenue.

Determine the billing period. To calculate profitability, the first step is to determine the period to be analyzed. Typically, the calculation takes comparable months, quarters or years and calculates the profitability for these periods.

• Think about why you need to calculate profitability? If you want to get a loan approved or attract investors, then interested people will need to analyze a longer period of time of your company's operation. However, if you want to compare profitability figures from month to month for your own needs, then it is quite acceptable to use shorter monthly time periods for calculations.

1. Calculate the total revenue received by your company in the analyzed period. Revenue is all of a company's income from the sale of goods or provision of services.

   • If you only sell goods, for example, you run a retail store, then your revenue for the analyzed period will be all sales realized minus discounts made and returns of goods. If you don’t have ready-made numbers at hand, then multiply the number of goods sold by their price and adjust the result for discounts made and returns made.
   • Similarly, if your company provides services, for example, repairing and sewing clothes, then your revenue will be all funds received for the provision of services in a specific period.
   • Finally, if you own an investment company, you should consider interest income and dividends received when calculating your income.

2. To calculate your net profit, subtract all your expenses from your revenue. Expenses are the opposite in nature of revenue. They represent the costs you had to incur during a period in connection with the production of goods or services and the use of certain facilities in your business. Your expenses will include not only the cost price, but also operating, investment and other types of expenses.

   Divide your net profit by your revenue. The result of the division, expressed as a percentage, will represent the net profit margin, namely, the percentage share of net profit in the company's revenue.

   • For the above example, the calculation would look like this: (300,000 ÷ 1,000,000) *100% = 30%
   • To further explain the meaning of the profitability indicator, we can use the example of a business selling paintings. Profitability in this case will talk about what share of the money received for the sale of paintings covers the costs and allows you to make a profit.

   Part 2

   Correct application of profit margin indicator

   1. Evaluate whether the ROI value is what your business needs. If you plan to live solely on the income from your business activities, analyze the profitability and sales volumes that can usually be realized in a year. You will definitely want to spend part of the profit received on reinvestment in the business, so calculate whether what is left from the profit will be enough for you to live your usual lifestyle?

      • For example, as mentioned above, the company's net profit amounted to 300,000 rubles out of 1,000,000 rubles in revenue. If 150,000 rubles are spent on reinvesting in the business, then you will only have 150,000 rubles left in your hands.

   2. Compare your company's profitability to that of other comparable companies. Another useful use of the profitability ratio is its use in comparative analysis of comparable companies. If you want to get a loan from a bank for your company, the bank employees will tell you what the profitability of your type of business, taking into account its size, must be in order to approve the loan. If you have a large enough company that has its own competitors, you can collect information about competitors and calculate their profitability to compare with yours.

      • For example, Company 1’s revenue is 5,000,000 rubles, and all expenses are 2,300,000 rubles, which gives a profitability of 54%.
      • Company 2 has revenues of 10,000,000 rubles and expenses of 5,800,000 rubles, so its profitability is 42%.
      • In this situation, Company 1's profitability is better, despite the fact that Company 2 receives twice as much revenue and has a higher net profit.

   3. When comparing profitability indicators, you should not “compare forks with bottles.” The profitability of companies varies greatly depending on their size and industry. To get the most benefit from benchmarking, it is best to compare two or more companies in the same industry that have approximately the same revenue.

   4. If necessary, try to improve your company's profitability ratio. Profitability can be changed by increasing revenue (for example, by raising prices or increasing sales) or reducing the cost of doing business. In addition, even if after taking actions to increase revenue and reduce costs, the profitability value does not change, you will receive an increase in net profit in ruble terms. However, as you experiment with raising prices or lowering costs, remember to consider your business's characteristics, risk tolerance, and competition.

      • It's usually necessary to make small changes before committing to larger ones to avoid bankrupting your business or causing customer dissatisfaction. Remember that increasing profitability comes at a price, and trying to increase profitability too aggressively can have the opposite effect on your business.
      • In addition, profitability should not be confused with trade margins. Trade margin is the difference between the selling price of a product and its cost.