What is return on sales

Return on sales

Profit margin

is a key figure that indicates how profit (before taxes) relates to sales. In this way, the profit, which is not very meaningful in and of itself, is related to the scope of the company's activity (expressed in terms of turnover). For comparison between I companies, it is only meaningful within one branch. See also return on investment.

The return on sales is defined as the difference between the ordinary operating result less interest expenses, divided by the sales revenue.

(also return on sales, pre-tax margin, return on sales; in%)
The return on sales describes the ratio of profit to sales within a period.



example
In the period under review, a company generates a profit of € 100,000 on sales of € 1 million. Accordingly, the return on sales amounts to 10%. For the viewer of the return on sales, it becomes clear how much profit a company has achieved per euro of sales in the period under consideration. The return on sales of 10% shown here means that 10 cents of profit could be generated for every euro of sales.



source
· Profit and turnover can be taken from the financial accounting.
· Corporations do not use the group annual surplus as profit, but rather the annual surplus before deduction of the portion of external parties.
· Freelancers use the profit minus their own, fictitious salary (so-called imputed entrepreneur's wage).
interpretation
· The return on sales is the measure of a company's profitability. The higher the percentage, the more profitably the company works.
· If there are no extraordinary factors, the return on sales provides an indication of a company's position in the market. The more pronounced its unique selling points, the greater the achievable return on sales. A weak return on sales - in the lower single-digit percentage range - usually indicates a highly competitive, highly competitive market.
· The profits of companies with a high return on sales are generally less susceptible to fluctuations in exchange rates, interest rates, raw material prices and other expense items. A high return on sales represents a kind of cost reserve with which unexpected cost increases can be absorbed without incurring an annual loss.
Measures to influence
In addition to lowering costs, profit can be positively influenced by increasing sales. The entire spectrum of marketing activities is available here. These include B .:
· Creation of a new market through an innovation
· Expansion of sales volume through penetration into new sales areas (e.g. in the course of internationalization)
· Acquisition of new target groups
· Discovering new areas of application for the products
· Increase in consumption intensity
· Stimulation of replacement needs
· Substitution of other products
· Increase in market share
Ensuring success through customer loyalty (repurchase rate, repurchase rate)
Establishing barriers to market entry (e.g. by concluding long-term supply contracts)
· Cooperation with other companies
Limits
· If the return on sales is calculated as stated above, it is subject to fluctuations in the tax rate, for example in the case of tax payments or the use of loss carryforwards. Profit before tax is therefore recommended for comparing the profitability of different companies or accounting periods.
· If you want to ignore the cost of debt when looking at operational profitability, you can also determine profit before interest and taxes.

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