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Which includes gross profit. Gross profit: formula and meaning

Enterprise management depends on many factors - awareness of technical, financial, legal and social processes and phenomena, entrepreneurial intuition, business experience in a modern market economy. At the heart of any commercial activity is the desire to obtain the maximum possible profit without loss of product quality and with minimal risks for the enterprise. It is profit that is the final, final indicator of the efficiency of an enterprise, and it is profit that enables this enterprise to develop and optimize its industrial potential. In order to properly and purposefully direct and regulate financial flows both within the enterprise and from outside, you need to have a certain competence in the types of profit, its sources, classification and optimal ways of its further use. One of these types is the gross profit, which will be discussed in this material.

Gross profit (VP) and cost

If the concept of profit includes the difference between expenses and income from the sale of goods or services, then gross profit is a characteristic of the effectiveness of the production and financial policy of the enterprise. So, gross profit is the difference between the revenue from a product or service sold and its cost. It is important to note that unlike net income, VP does not exclude variable and operating costs and income tax deductions. In a formulaic expression, gross profit is obtained as follows: VP \u003d B-C, where B is the revenue for the goods sold, and C is the cost of the goods or services produced. Gross profit is the profit from the sale of a product or service minus its cost.

In order to correctly and objectively obtain the volume of the gross profit of the enterprise, it is necessary first of all to determine all the items of expenditure that include the cost of goods, including variables that were not determined and calculated in advance. So, according to the most common definition, the cost is the entire amount of resources, expressed in monetary terms, that was spent on the production and marketing of a product or service. Thus, only having a complete picture of all the costs incurred by production for the manufacture and sale of a product or service, it is possible to objectively calculate the amount of gross profit for a certain period of time.

Factors Affecting Gross Margin

Like any other financial category, EaP is affected by a number of factors. Conventionally, they can be divided into factors that depend on the activities of the entrepreneur, and independent factors. The first category includes the dynamics of growth in production and sales volumes, expansion of the range, work to improve the quality and competitiveness of products, cost reduction, optimization productivity and efficiency of each unit of personnel potential, maximum use of production assets and capacities, regular analysis and, if necessary, revision of the company's marketing strategy. The second category includes factors that cannot be influenced by economic entities: geographical, natural, environmental or territorial conditions, legislative regulation, changes in the state strategy in business support, international and global changes related to the resource and transport support of the enterprise.

If the second category of factors obliges to choose a flexible and rapidly changing management strategy that would ensure the continued operation of the enterprise without, or with minimal losses and costs, then the management of factors of the first category is quite within the power of an experienced and competent management of the enterprise.

By increasing the volume of output and sales of products, and thereby increasing the turnover, the company contributes to the growth of its gross income, there is a directly proportional dependence. That's why great importance it is necessary to give support to the pace and volume of production at a stable level, not allowing a decrease, since it will inevitably entail a negative reflection on gross income. It is important to note that the unsold balances of products that could generate income, but for one reason or another become unnecessary weight for the enterprise, play an extremely negative role. Some managers sometimes use a strategy of discounts, additional goods at a reduced cost, or barter exchange of leftovers, in order to maximize their implementation and return the capital spent to the working capital. Most often, such marketing steps do not bring gross income, and if there is a positive result, then it is minimal.

It is very important to influence the cost of production - the use innovative technologies in production, the search for the lowest possible ways to deliver products to the buyer, the introduction and use of alternative and economical energy resources ultimately helps to reduce costs and significantly affects the gross profit of the enterprise.

One of the most important factors to be noted pricing policy enterprises - high competition in a modern market economy constantly stimulates the manufacturer to revise pricing. Two categories of factors intersect here, because the state antimonopoly policy interferes with the pricing policy of the enterprise, on the one hand, promoting healthy competition in the market for goods and services, and on the other hand, preventing the free setting of prices for a particular product. But you should not strive for a constant price reduction to increase the turnover of the enterprise - a stable and confident exchange rate will help you stay afloat, and in any case it will be better than a feverish increase in volumes in order to maintain a stable income.

Analysis of the profitability of products makes it possible to determine which product should be the maximum bet, and the need to release which products should be reduced or even limited. After all, it is obvious that the turnover of profitable products gives the maximum gross income, thereby increasing the net profit of the enterprise.

During the operation of any production, over time, inventories arise that are no longer used, or their use is inappropriate. This may arise due to illiterate management, or in connection with objective factors. In this case, in order to avoid losses that may arise due to the fact that the possession of these assets and their further sale will be much lower than the cost of their acquisition, it is worth taking measures to sell them. The money received from the sale of fixed assets will also be part of the gross profit of the enterprise.

Another source for increasing gross profit may be a non-operating income item - incoming rent, interest and dividends on shares or deposits, fines and sanctions in favor of the enterprise and other sources.

Optimal distribution of gross profit

So, having sold products, and having received a certain amount of money, you need to properly and constructively dispose of them, without forgetting any of the expense items. Imagine a conditional pyramid, at the top of which is the total gross profit, then go various sources expenses: rent for construction or production facilities, payment of interest on existing loans, various charitable contributions and funds, all kinds of taxes, and most importantly - net profit. Further, net profit is also divided into several groups - environmental funds and payments, selection, training and training of human resources, social funds for the creation of social infrastructure of both the enterprise and the state as a whole, personal income of the owners of the enterprise, and reserve cash savings.

A good effect is given by the strategy of paying wages to personnel, when they receive not only a fixed salary for their work, but, like the owner of the enterprise, a part of the income from the final gross income of the enterprise. Such payments are of a premium nature, and, as a rule, are made irregularly, most often at the end of the year or the reporting period.

It should be noted that all types of payments are conditionally divided into two categories - those whose minimum amount is fixed, and those whose distribution depends on the managers and owners of the production. The first can be attributed different kinds payments on rent, interest, loans. The second category is more specific, since the amount of payments in charitable foundations or social needs depends on the decision of the governing apparatus, and therefore may not always be objective and useful. An increase in a part of the businessman's own profit, and consequently a decrease in expenses for other items, may further negatively affect the growth dynamics of the enterprise. This is primarily due to the human factor, which plays essential role in the production process - a full social package for staff, developed social support and infrastructure significantly affect the level of labor productivity.

Thus, an objective and detailed approach to the distribution of the gross income of any enterprise provides an opportunity not only for its subsequent development, expansion of production capacity and strengthening of human resources, but also contributes to a further increase in the net income of the enterprise.

Any entrepreneurial activity is aimed at extracting profit from the enterprise. The amount of income is a direct reflection of the performance of production activities. The term "gross profit" should be understood as the difference between income from the sale of inventory and profit covering the cost of manufactured goods. In this topic, we will look at what gross profit is in simple terms.

Gross profit is the difference between the profit from the sale of products and the profit, which is calculated on the cost of this product.

What is the term "gross profit" used for?

As mentioned above, the term "gross profit" is interpreted as the total revenue of an enterprise received over a certain period of time. Here you should take into account the total amount of revenue, except for the costs associated with covering production costs. Information about the total amount received as a result entrepreneurial activity, reflected in balance sheet. The difference between gross profit and net income is that the latter aspect includes expenses associated with tax deductions and other obligatory payments.

There are several factors that affect the final amount received as a result of entrepreneurial activity. These factors can be divided into two conditional categories. The first category of factors is related to the actions of the company's administration. Each entrepreneur independently controls the scale of his production. In order to achieve maximum results, measures are taken to reduce the costs associated with the production of goods and increase the volume of manufactured products. The amount of gross profit depends on the degree of sales efficiency, as well as the production scale of the enterprise. In order to get a steady income, it is necessary to constantly carry out various activities in order to improve the quality of manufactured products.

External factors that have an impact on the amount of revenue belong to the second category. In this matter, consideration should be given to:

  1. Features of the laws on the basis of which the activities of the enterprise are carried out.
  2. The state of the economy and the specific market segment to which the company's products belong.
  3. Location of the enterprise.
  4. Natural resources and ecology.

What is the difference between profit and income

Doing business involves understanding various economic subtleties. First of all, it is an awareness of the difference between income and profit. The term "income" is used to calculate the difference between the amount received from the sale of products (rendering services) and the cost of production. The total amount received as a result of such calculations is income. In the case when entrepreneurial activity is carried out only in the service market, the level of income is equal to the proceeds from the sold products and services rendered.

In order to calculate the profit received, it should be subtracted from the income received, an amount equal to the cost of obtaining it. This category of spending includes insurance payments, wage hired employees, fare and other types of payments. It is important to note that the level of income is a positive value, in contrast to profit. Negative meaning profit occurs when the level of production costs exceeds the total revenue.


Gross profit is the total income a firm earns in a given period of time.

The concepts of net and gross profit

In accounting, profit is divided into two categories: net and gross. Gross profit is the difference between revenue generated and production costs. These calculations should take into account various costs associated with the purchase of raw materials for production, tax deductions, employee salaries and other nuances. It should be emphasized that tax payments are made from gross profit.

Production costs are quite difficult to calculate, since many different nuances must be taken into account. Debts to creditors, insurance payments, penalties from inspection bodies and expenses associated with renting real estate are mandatory components of the calculations. The remaining amount after carrying out operations related to the implementation of all necessary payments is net profit.

Thus, the gross profit of the enterprise is the total amount that the entrepreneur has left after paying for production costs. In case of commercial enterprises, this amount is based on the results of sales of products. The gross profit of a firm operating in the service industry is the total amount from which all necessary expenses are deducted.

It should be noted that the methods for calculating the level of profit are regulated at the legislative level. These restrictions on the part of the state are aimed at streamlining settlements and creating equal tax conditions for each person engaged in entrepreneurial activity. Knowledge of these aspects and understanding of the term "gross profit" is explained by the fact that most of tax payments made from the gross profit. Based on this fact, it is important to understand what expenses can be included in such calculations.


It differs from net, gross profit in that it includes the costs of paying taxes and other obligatory payments.

Settlement rules

It should be emphasized that the calculations of tax payments are carried out only after calculating the amount of gross profit. The latter is defined as the total amount plus additional profit. During the preparation of the necessary calculations, the activities of the enterprise should be taken into account:

  1. Trade enterprises. First of all, the amount of total income is calculated. In order to get the amount of net profit, you will need to deduct from the total amount all the costs associated with the provision of discounts and the return of defective products. The costs associated with the cost of production are deducted from the amount received. The result obtained is the gross revenue of the enterprise.
  2. Service companies. In such organizations, the amount of gross revenue is equated to net income. In order to get the final amount, it is necessary to calculate the difference between the income received and the expenses associated with discounts and claims from customers.

In addition, during the calculations, you should focus on several nuances. First of all, you should check the correctness of the reflection of information in the reporting sheets related to the daily receipt of funds. This includes both cash and bank payments. You also need to pay attention to inventory. This indicator is assessed at the beginning of the year. The result obtained is compared with the amount of revenue for previous years.

The same indicator is evidence of the effectiveness of the enterprise.

Further, the costs of acquiring various inventory items are taken into account. It can be both official cars and real estate, as well as various items. office furniture. This type of spending without fail excluded from production cost calculations. After that, calculations of inventories at the end of the year are made. The need for these calculations is explained by the importance of identifying the fact of compliance with the requirements established by the state. In these calculations, it is necessary to use the pricing manuals. In order to confirm the size of inventory items, you will need to conduct an inventory.

The following is an analysis of the correctness of the calculations. In the case when the activity of the enterprise is based on retail or wholesale trade, such calculations take a short period of time. To obtain the required result, it is enough to divide the amount of gross profit by the net revenue. The interest received is the difference between the cost of inventory and the price tag when sold.

In conclusion, additional sources of revenue are taken into account. AT in the event that the enterprise receives income from sources not related to the main activity, this amount is added to the gross income. The result obtained is the gross revenue.


Gross profit calculation must be carried out before taxes are calculated

Calculation examples

There are several different formulas that are used in accounting to calculate the amount of gross income. In most cases, a simple formula is used:

"VP \u003d D - (C + Z)".

Let's look at what these abbreviations mean:

  • "VP" - the amount of gross income;
  • "D" - income received from the sale of goods;
  • "C" - the cost of production;
  • "Z" - additional expenses.

Gross profit calculation formula using the balance sheet:

"B" (p. 2110) - "SR" (p. 2120) = "VP", where:

  • "B" - revenue;
  • "CP" - cost of sales.

In order to make competent calculations, it will be necessary to analyze in detail all the expenses of the enterprise, including the costs associated with the cost of production.

Calculations based on turnover are used in cases where a single markup is established for various types of goods produced. It should be noted that the production of such calculations is quite convenient, since the value of the company's turnover is taken as the basis. The term "turnover" is used to characterize the final value of income, including VAT. In order to obtain the necessary data, you should:

"T * RN / 100-S \u003d VP", where:

  • "VP" - gross income;
  • "T" - the result of the turnover;
  • "C" - the cost of inventory items;
  • "RN" - estimated allowance.

To determine the estimated allowance, you will need to carry out the following operation: "T / 100 + T \u003d PH". The markup is calculated as a percentage.

Below we suggest that you familiarize yourself with how the gross profit of an enterprise is calculated using the example of the IE "Tsvetochek", whose activities are based on the production and sale of souvenirs. The financial statements for the last few years are presented below, based on information about financial activities companies:

Based on the above formulas, we get that the income of the enterprise has increased by 30,000 rubles. The chosen strategy for the sale of finished products allowed to increase the level of revenue. Finding new ways to develop the company can increase the bottom line in 2019.


To carry out a competent calculation of the size of the gross profit, it is necessary to study in detail all the cost items included in the cost of goods

How to avoid mistakes when making calculations

During the preparation of such calculations in order to determine the size of gross revenue, many people make typical mistakes associated with incorrect data on the cost of products. To prevent such errors, it is necessary to take into account the amount of VAT and budget payments. You should also note that some items are subject to write-off. This means that products that are not formally in the warehouse of the enterprise are registered as subject to sale. This alignment is evidence of the need for an inventory. It is necessary to carry out these actions after the sale of existing products.

You should also pay attention to the similarity of marginal and gross revenues. The mistake of many people is the opinion that these concepts are interchangeable. In reality, gross revenue is the difference between income and expenses (fixed and variable). When calculating contribution margin Only variable costs are taken into account. Since doing business involves various costs, the amount of gross revenue is much less than the marginal one. Fixed expenses include utility bills, rent, and other expenses.

The funds remaining as a result of payment of all operating expenses, including taxes, licenses and patents, are profits that can be used at the discretion of the entrepreneur.

The gross profit of the company allows managers to analyze the work of departments of organizations with an extensive network of production or retail outlets. Consider how to calculate and compare this indicator.

You will learn:

  • What does the term "gross profit" mean?
  • What factors affect gross profit.
  • What is taken into account when calculating gross profit.
  • How to calculate gross profit margin.

The value of GDP is interconnected with the development of production; it does not always reflect the real picture effective work enterprises. It does not include, for example, logistics and marketing costs. Therefore, when forming the final budget, the calculation of one IP indicator will be too small.

Gross Profit Calculation: Formula, Methods, Examples

What affects the revenue of an industrial enterprise:

  • technologies and specifics of goods production;
  • fixed assets;
  • intangible assets;
  • issue of bonds and shares;
  • sold products (services) of other structural units accounted for in the general balance sheet (subsidiary farms, vehicle fleet).

The cost of such enterprises includes:

  • the cost of resources, raw materials, materials and fuel;
  • wages of employees;
  • management costs;
  • depreciation of fixed assets and intangible assets;
  • overheads;
  • shipping and logistics costs.

What determines the revenue of organizations selling goods:

  • purchase price of products;
  • paid services (delivery, warranty service and after-sales services);
  • enterprise assets ( securities and software).

The cost of commercial firms includes the elements:

  • the cost of purchased products;
  • shipping costs;
  • remuneration of employees of the company;
  • the price of renting warehouses and retail outlets;
  • storage of products and preparatory work;

To determine the gross profit, two parameters are used: revenue and the technological cost of the entire volume of production (minus commercial and administrative costs). There are other ways to calculate. Let's name the most important of them.

Gross Profit Calculation


Calculation for trading companies


Calculation by turnover

This technique is practiced by retailers in the case when a single mark-up value is adopted for all the products they sell. Sometimes it is more convenient to calculate this indicator based on the company's turnover figures. Goods turnover refers to the amount of revenue including VAT. For this you should:

In addition, you can use another formula:

Balance calculation

As a rule, to calculate gross profit according to the formula, indicators from the balance sheet of the organization, as well as the report on its financial activities, are used. This method is suitable for companies with STS (simplified taxation system). Then the calculation algorithm looks like this:

Line 2100 = line 2110 - line 2120, where:

line 2100 - gross profit (taken from the balance sheet);

line 2110 - the amount of revenue of the enterprise under study;

line 2120 - technological cost.

Example 1 (according to balance sheet)

Producer JSC "Intensiv" produces and sells equipment for agriculture. According to financial work the enterprise for the last few years, its financial results are:

Name of indicator

2016

2017

Sales proceeds, thousand rubles

Production cost, thousand rubles

Calculation of the gross profit of the enterprise JSC "Intensiv":

ETC shaft 2016 = 140,000 - 60,000 = 80,000 (rubles)

ETC shaft 2017 = 200,000 - 80,000 = 120,000 (rubles)

Calculations show that during the year the organization increased its income by 40,000 rubles, therefore, this year it will continue to implement the chosen policy while simultaneously searching for new directions for development.

Example 2 (by turnover)

The Yagodka grocery store has determined a 35% markup for all products. The total revenue for the year reached 150,000 rubles. (in view of VAT).

The estimated allowance is: P(TN)=35%:(100%+35%)=0.26. AT this case the amount of the realized trade overlay (surcharge) will be 0.26 × 150,000 rubles. = 39,000 rubles.

An example of calculating gross profit and analyzing the data obtained

We will give examples of calculating gross profit for two enterprises and analyze the result. The Voskhod plant bakes a wide range of bakery products, has production facilities in the Moscow region and trades only in the capital region. The Zarya enterprise is located in Samara, has a similar specialization, but differs assortment .

Table 1. Gross profit of the Voskhod organization for the first half of 2016

Name / Month

Total

Revenue, thousand rubles

Gross profit, thousand rubles

The table shows that the gross profit is systematically increasing every month and from 2,000,000 rubles. increased to 3,300,000 rubles. Monthly growth factors are cost and revenue. In just 6 months, the company earned 23,400,000 rubles, while the cost of sales amounted to 7,600,000 rubles, VP - 15,800,000 rubles.

It turns out that the average gross profit of the company every month reaches 15,800,000/6=2,600,000 rubles. This amount of income is able to cover other expenses: administrative, sales costs, loan interest.

If we compare only the absolute values ​​of the EP, we can analyze the trends for half a year, but it is not easy to note the quality of the result of the company's work. In this regard, we calculate the relative parameter, that is, the profitability of gross profit as its ratio to the organization's revenue. For all six months it was 67.4%, and every month this figure is approximately the same. But still, compared with the average for the six months in March-April, there is a decrease, and in May there is an increase in the profitability of the EaP.

The determining factors for these values ​​are cost and revenue. As a result of the analysis (it is absent in this article), it was found that just in March, pilot sales of absolutely new products. This caused the growth of revenue in this particular month, including subsequent ones. For this type of product, the cost of sales in March-May was increased, since the company did not fall under preferential prices for materials and raw materials in terms of the scale of purchases in accordance with contractual deliveries. The situation changed in June.

Let's calculate the gross profit for the Zarya plant and analyze what happened.

Table 2. Gross profit of the Zarya organization for the first half of 2016

Name / Month

Total

Revenue, thousand rubles

Cost of sales, thousand rubles

Gross profit, thousand rubles

Gross profit margin, %

The second table shows that the revenue of Zarya is significantly lower than that of the Voskhod enterprise.

The average monthly revenue is 1,900,000 rubles. (11:15:6). At the same time, during the first half of the year, differences in dynamics are visible. From the beginning of the year to April, revenue grows, and from May it begins to decrease. The same thing happens with gross profit. The average monthly total profit of the plant is 1,200,000 rubles. (7.1:6). From the position of Zarya, is this not enough or too much? In part, this question can be answered after calculating the profitability of the EaP. Its average value is 63.7%.

The enterprise carries out accounting according to the method of accrual of income (expenses). The abbreviated method was chosen for costing. Nearly 64% of a firm's gross profit can be spent on selling, administrative and other expenses.

This example demonstrates that over the course of six months the absolute values ​​of EP showed unconditional dynamics, however, the calculation of relative characteristics revealed additional changes. So, despite the June drop in total profit, there is an increase in the profitability of the EaP over the same period. The determining factors for these changes are cost and revenue. As a result of the analysis (it is absent in this article), several justifications were found.

In February, the company purchased cheaper products (sugar, flour), besides, the recipe of some samples of the assortment has changed. AT next periods the former supplier returned, helped by the poor quality of cheap raw materials. The decrease in May's profitability of VP was also caused by a change in prime cost. The year before last was marked for the company by the introduction modern system KPI to motivate staff. And already in May, according to the results of the 1st quarter, the first bonuses were paid to workers of industrial lines. There was an increase in the wages of production workers and an increase in the cost of sales.

Later in June, the plant lost some points of sale of goods and could not find a replacement for them in advance. Revenue immediately fell, and the profile of trade changed (sales of products with a higher cost and a lower margin). In general, there has been an increase in the cost of sales along with a decrease in the profitability of total income.

When comparing two examples, it can be seen that the gross profit of Voskhod has a more stable average dynamics (2,600,000 rubles). The average VP of the Zarya enterprise is almost half that (only 1,200,000 rubles). Its dynamics in the first half of the year is unstable, the situation on the market is more difficult or there is a lack of resources to regulate the current situation.

The amounts of average revenue per month are also different: for Zarya - 1,900,000 rubles, for Voskhod - 3,900,000 rubles. It should be noted that the selective comparison is only absolute values not quite right. If the Zarya plant can increase its turnover in order to catch up with Voskhod in terms of revenue, will it be just as economically efficient? The answer to this question will give an indicator of the profitability of the EaP. On average, for the Voskhod enterprise it is 67.4%, and for Zarya it is slightly lower - 63.7%. A difference of 4% can be decisive. From which it follows that in this moment Sunrise is more successful. He works and sells much more efficiently, keeping the firm's gross margin at a consistently high level, unlike Zarya.

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What to Consider When Calculating Gross Profit

Any steps that precede the calculation of gross profit must be performed before taxes are calculated. When completing the C-EZ form, the total profit will be taken into account along with the additional one.

Calculations are carried out taking into account the types of enterprises, namely:

  • Companies that sell goods, belong to the Businesses that sell products category. To determine gross income, you need to find the amount of net total profit. To do this, use form C (point 3). To calculate net revenue, subtract all returns and discounts in the organization's activities from the total amount of offsets. Then from net income (3rd line) subtract the cost products sold(4th line). The resulting difference will be the gross profit of the company.
  • Companies that sell services, are included in the Businesses that sell services category and provide only services (excluding the sale of goods). In this case, the gross income is identical to the net revenue of the organization. The calculation is made by subtracting the total of discounts and returns from gross income. Basically, enterprises specializing only in services calculate profit according to this simplified scheme.
  • Gross revenue. Every day at the end of the working day, you need to make sure that all data related to financial and credit receipts are correctly reflected in the statements. At the same time, the volumes of income are controlled using the available cash registers. In addition, you need to open a separate bank account and learn how to work with invoices.
  • Collected sales tax. The main thing is to make sure that your reports correctly indicate the amount of tax collected. Its essence is as follows. When levying state and territorial sales taxes from buyers (the state withholds them from the seller), all the funds claimed are added to the volume of the total gross income.
  • Inventory(analyze the indicator obtained as of the beginning of the current year). It is compared with the sum of the final gross profit for the past year. In a normal scenario, the indicators will be the same.
  • Purchases. The amount spent on goods purchased by the entrepreneur in the course of his activities for personal use or for family members is deducted from the cost of goods sold.
  • Inventory at the end of the year. Check that the accounting of the reserves of the enterprise is carried out in compliance with the procedure and standards. An indispensable condition for this is the choice of the right pricing methodology.

To confirm all inventories available, a standard inventory list, the forms of which are sold in specialized stores, will suffice. The form contains columns for specifying the quantity, price, and value of each type of product. There is a place on the form for entering information about the employee who evaluated the goods and calculations, and then checked their accuracy. These forms are evidence that the inventory of goods and materials was carried out correctly in the absence of serious errors.

Download form act of inventory of inventories in transit , you can at the end of the article.

  • Checking completed calculations. For organizations specializing in wholesale or retail, recalculation is done fairly quickly. All that is needed is to find the ratio of gross income to net income. The result, obtained as a percentage, reflects the difference between the cost of goods sold and the nominal price.
  • Additional sources of VP. If the firm's gross profit is derived from sources that are not related to the main activity, the income indicator is entered in the 6th line of Form C and added to the gross income. The total amount will show the total income of the entrepreneur. When Form C-EZ is used for reporting, profit is reported on the 1st line. For example, this type of income includes revenue received from tax refunds, offsets, commercial operations with scrap metal, etc.

Practitioner tells

Gross Profit in Income Statement Factor Analysis

Artyushin Vladimir,

Vice President for Finance FS GROUP1

Conducting a factorial study of profit and loss statements will help to estimate the exact amount by which net income has changed due to various reasons. Suppose, in order to determine the losses of the enterprise's VP due to a decrease in revenue and a decrease in the profitability of sales, it will first be necessary to calculate what the total profit could be while maintaining a stable profitability at last year's level.

The difference between this conditional RP and the profit of the previous year will illustrate how much profit (RP) in monetary terms the company missed (earned) as a result of a decrease in revenue decline.

The formula for gross profit to calculate is:

VPv \u003d VPusl - VP, where:

VPusl - conditional VP, which could be received by the organization while maintaining last year's profitability (this year's revenue, last year's profitability), rub.;

VPO - last year's gross profit, rub.

Using a similar formula, you can determine how the change in sales profitability affects the amount of total profit (TPR):

VP = VP - VPusl, where:

VP - the annual gross profit of the company for the reporting period.

What affects gross profit

The components of gross profit and its size are influenced by a number of important factors listed below.

External factors:

  • transport, Environment, socio-economic conditions;
  • the level of foreign economic relations;
  • the cost of production resources, etc.

Internal factors can be roughly divided into two types:

  • first order causes, which includes income from the sale of goods, operating profit, interest payable (or received), other non-operating income or expenses of the enterprise;
  • second order causes include the cost of production, the composition of the goods sold, the scale of sales and prices set by the manufacturer.

In addition to these reasons, internal factors include cases caused by violations of labor discipline in the course of the work of economic entities (incorrect pricing, poor product quality, violations in the organization of labor, financial sanctions and the use of fines).

Both types of factors (first and second order) directly determine the amount of gross profit. The first order causes include components of gross income, the second order circumstances directly affect the sales proceeds and, as a result, the total amount of the company's profit.

To further prosper and increase the profitability of enterprises, it is necessary to take a series of measures, namely:

  • apply the LIFO method (Last in First out) to estimate resources;
  • reduce taxes due to the transition to preferential taxation;
  • timely write off the debts of the organization, which are recognized as uncollectible;
  • optimize the costs of the enterprise;
  • conduct an effective pricing policy;
  • let shareholder dividends for modification production equipment and improving product quality;
  • develop standards for the control of intangible assets.

How gross profit margin is calculated

In the process of a generalized analysis of the profitability of organizations, the characteristics of net and operating profitability are often used, but according to techniques compilations are only derivatives of gross profit. In this case, the main expenditure items (often with a maximum specific weight) are applied already at the stage of calculating the gross profitability.

Gross profit margin (hereinafter RRP) is the rate of return (or percentage) on the costs associated with the production and marketing of products. It is calculated according to the generally accepted standard formula without the use of other modified calculation methods.

The composition of this indicator establishes the dependence of its value on the business area. For example, enterprises providing services (medicine, consulting, information and communication technologies) have a higher RVP than trade organizations. This means that the EP profitability index is, in fact, useless for intersectoral analysis. But when comparing economic entities of a certain field of activity, this parameter is an excellent way to assess their competitiveness. Especially if a factor analysis of the coefficient of industrial enterprises is performed. All major efficiency and growth programs are based on gross margins: raw material cost, culling rate, labor productivity, marketing strategy (sales value) and other important components.

When calculating the gross profit margin, serious attention should be paid to the cost of sales component. Figures taken from a similar line (No. 2120) of the F-2 accounting report (financial statement) in some cases are completely unacceptable. First of all, the cost of sales should contain expenses taking into account the scale of sales, that is, variable or conditionally variable costs. This includes the cost of materials, wages for production workers (with all fees and taxes), additional costs (repair and depreciation of equipment, payment for electricity, other items).

At the same time, some commercial costs associated with sales are also included in the cost price. illustrative example such expenses - bonuses to sales managers for the volume of goods sold.

Considered differently depreciation. Since the straight-line method of calculating depreciation costs is a special preference for accountants, RVP calculations are most often distorted. When an enterprise shows an obvious jump in revenue rates, accounting for depreciation unchanged will artificially inflate the gross profit margin with an increase in sales, and exactly the opposite will happen with their decrease. A similar situation develops with the rental of industrial premises (or equipment) and other costs that, according to the source of occurrence or type of accounting, cannot be planned due to the scale of production and sales.

The correct calculation of the RVP is of cardinal importance for the formation of prices in a highly competitive market. Only reliable information about this indicator allows the owner (management) of the business to see the optimal selling price, taking into account the required amount of profitability.


What is the company's gross profit allocated to? She compensates fixed costs, debts, interest on loans, payment of taxes, payment of dividends. That is why the analysis of the dynamics of the profitability of the organization must be carried out in accordance with the value of RVP. Profitability indicators of a not so high level are not quite suitable for this purpose due to the increased influence in the calculations of the number of factors and the accounting strategy used.

When evaluating projects or researching businesses in the growth stage, the gross margin index and its changes are used to predict the payback period.

The main disadvantages of the RVP coefficient are closely related to its advantages. Undoubtedly, it should be used in analytics along with other characteristics of financial stability and profitability, since it cannot take into account the capital structure and all costs of the enterprise. Its focus only on the factors of marginal productivity deprive the coefficient of the ability to comprehensively and relevantly assess the company.

Since the profitability rating of gross profit is significantly inferior to net and operating profitability, its function is often erroneously overestimated by certain groups of users of financial statements. In addition, there is always the possibility of RWP being distorted by the accounting policy used. Of course, profitability indices of a reduced level may also be inaccurate due to the nuances of maintaining accounting, but much less than the profitability index of the EaP.

It turns out that it is not easy to estimate the optimal degree of this coefficient. Its use for comparison with the parameters of other industry organizations increases the vulnerability of the index due to the lack of detailed data on the circumstances of the dynamics of RVP among competitors. And explanatory reports and audit conclusions do not always contain complete information for such an assessment.

Due to the lack of uniform standards for assessing the profitability of gross profit, when considering the indicator, one should first find its target level. The best option is to calculate the RVP according to the reports of the industry leader in the company's field of activity. When the use of benchmarking for some reason is not possible, it is necessary to perform an empirical assessment and monitor the dynamics of the coefficient over the actual period of prolonged activity. The main reasons for RWP fluctuations are a number of factors:

  • change in selling price without taking into account the dynamics of calculating the production cost;
  • change in the purchase price of raw materials(materials) or other important items of expenditure;
  • change in the scale of sales(if the cost contains fixed or semi-fixed costs that are not directly related to the accounting method). For straight line depreciation, the cause is considered to be the effects of accounting policies, not sales dynamics itself;
  • fluctuations in the indicator of renewal of stocks of raw materials, materials and finished products. Need to understand real reason growth in costs associated with an increase in raw material prices. So, if an enterprise takes into account inventories using the FIFO method, an increase in inventory turnover will cause a drop in the profitability of the VP due to a decrease in the part of more inexpensive resources (by the time of purchase) in the cost price. With the constant renewal of stocks, the change in prices depends entirely on the revision of contracts with suppliers. It must be emphasized that, contrary to the negative influence an increase in this indicator by the gross profit margin, for the business as a whole, this increase is certainly a positive factor.
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Practitioner tells

How to Increase Gross Profit Margin

Buvin Nikolay,

financial director of LLC "Liteko"

The company's focus on increasing gross margin is associated with both positive and negative business trends - for example, a decrease in gross profit in some cases. I will list the main factors for the growth of gross profit margin:

Increasing the cost of sales by improving the quality of products (the marginal profitability of modernization must be greater than the current RVP). Increasing the share of products sold with increased marginality in gross revenue.

Re-evaluation of credit strategy in relation to discounts for buyers. At the same time, it is necessary to analyze the dynamics of the EP based on the results of changes in the CP.

Activation of the activities of buyers in matters of finding the most favorable prices and supply contracts for conditionally variable and variable costs. Earned discounts for expanding the volume of purchases must be correlated with the current rates of the financial market in order to avoid a negative result of net profit for the sake of increasing RVP due to the mobilization of additional current assets for funding.

Creation and implementation of direct cost management systems by creating a procedure for motivating personnel for offering useful initiatives to increase savings in different phases of production.

Factor analysis of the RVP index always attracts Special attention owners of companies, top management and the board of directors. For this reason, the assessment of the indicator may become more complicated, despite the elementary calculation formula, the reliability and availability of data. The attitude of users of information to the abstracts of analytics provided to them should be taken into account. Let's say that specialists can explain many reasons for the RWP dynamics by the accounting policy of the enterprise (the impact of artificial adjustment). I advise you to avoid similar factors during the presentation in order to prevent misunderstanding of the audience and additional questions in the discussion, which are not easy to explain without preparation.

As for forecasting the profitability of gross profit, I emphasize that this is often the main indicator of the profitability of the budget or business plan. Hence, it must be calculated very carefully. In companies with a long history, the thoroughness of planning is supported by the actual results of past years. Newcomer companies can use the results of other industry leaders in the distribution with similar SWOT analysis tools.

The most important indicator in assessing the activities of an enterprise (especially production) is gross profit. When its main activity is unproductive, all other processes will also be unprofitable. Comparing the performance of one company in different periods reporting, it is necessary to take into account whether changes are noted in its accounting area (methods of reflecting cost and revenue). The same algorithm is used when evaluating several companies. In addition to the absolute indicators of EP, it is rational to consider relative coefficients.