In the course of their activities, most enterprises produce one or another type of product. Of course, the organization can perform work or provide services, but this does not change the essence. Employees of the enterprise use certain raw materials, materials or something similar, carry out certain actions with them, as a result of which this very product is obtained. Then it must be sold in order to recover costs and make a profit. Of course, such a description is very arbitrary, but the meaning is very clear. During the production process, the company incurs costs, and as a result wants to make a profit. The relationship between these values is reflected using indicators of profitability, one of which is the profitability of products sold.
So, first we will decide how to find the profitability of the products that were sold by the company. For this, it is only necessary to divide the profit into cost. But the whole problem lies precisely in which types of profit and cost should be included in the calculation. Let's start with the numerator, that is, with profit. Of course, the vast majority of profitability indicators are calculated on the basis of net profit. The profitability of products sold to you, too, no one bothers to calculate in this way, but this will not be entirely true. The fact is that other incomes and expenses that have nothing to do with the sale of products also affect net profit. In this regard, it will be much more true to use the profit from sales, which you can easily find in the financial statements.
We turn to the denominator of the fraction, which is the cost. Since we are evaluating the profitability of our products, we must use its cost price. But not everything is so simple, because the prime cost can be production or full. Between them, making a choice is also very simple. The production cost does not include the costs associated with the sale of products, so this value cannot be used for our purposes. Thus, the calculation should include exactly the full cost, which consists of both production costs and sales.
Having decided on the calculation method, we can finally move on to the economic meaning of this indicator. The profitability of products sold shows how much profit the company receives from each ruble that was invested in the formation of the total cost of production. This indicator combines the efficiency of not only production, but also implementation. This is the value of this type of profitability.
A few more indicators should be mentioned, which are in many respects similar to those already considered. When used in the calculation of production costs, we will be able to evaluate exactly how effective the production activities of the company are. Obviously, this indicator will be larger than the previous one, since not all costs will be taken into account in the denominator.
And if the denominator not only takes into account all costs, but also adds profit to it, then we will get the value of revenue there. As a result of calculations, we will determine the value of return on sales, which characterizes the share in the revenue of the profit that the company receives by selling its products.
A feature of all such indicators is that normative comparisons are not used to evaluate them. The most effective methods for studying profitability are horizontal analysis, which is an analysis of the dynamics, as well as comparison with indicators of similar enterprises and with average values for the industry to which the company in question belongs.