A company's profitability is based on its ability to both increase
revenues and lower costs. When evaluating the performance of different
companies, an investor must consider more than just a company's total
annual sales. The sales profit margin and sales profit variance are two
financial calculations that allow a firm to better present its total
profitability.
What is Sales Profit Margin
The sales profit margin is a measure of a company's profitability over its costs. When looking at a company's financial history, a growth in earnings is usually taken as a positive sign. A company with growing earnings may still be having problems if its costs are growing as fast or faster. The sales profit margin measures the percentage of revenues that a company has after costs. It is calculated by dividing net profits over total sales.
Sales Profit Margin Calculation
A company has total annual sales of $10 million and costs of $9 million. Net profit = $10 million - $9 million = $1 million Sales Profit Margin = $1 million / $10 million = 0.10 = 10 percent.
What is Sales Profit Variance
A company may want issue performance forecasts for its annual sales on its accounting statements. This is done to give investors a better idea of the company's financial state. Forecasts are based on historical sales numbers and predictions on future market conditions. Sales profit variance is the difference between a company's actual and predicted sales figures. When a firm sells more than expected, it credits the gain to its accounting statements. If sales are lower than predicted, the firm debits the difference to its statements.
Sales Profit Variance Calculation
A company has made $500,000 in sales each year the past three years. It predicts sales of $500,000 for the following year on its financial statements. Due to poor market conditions, actual sales were $400,000. Sales Profit Variance = predicted - actual = $500,000 - $400,000 = $100,000 The firm overestimated annual sales by $100,000 and must debit its accounting statements by this amount.
http://www.ehow.co.uk
What is Sales Profit Margin
The sales profit margin is a measure of a company's profitability over its costs. When looking at a company's financial history, a growth in earnings is usually taken as a positive sign. A company with growing earnings may still be having problems if its costs are growing as fast or faster. The sales profit margin measures the percentage of revenues that a company has after costs. It is calculated by dividing net profits over total sales.
Sales Profit Margin Calculation
A company has total annual sales of $10 million and costs of $9 million. Net profit = $10 million - $9 million = $1 million Sales Profit Margin = $1 million / $10 million = 0.10 = 10 percent.
What is Sales Profit Variance
A company may want issue performance forecasts for its annual sales on its accounting statements. This is done to give investors a better idea of the company's financial state. Forecasts are based on historical sales numbers and predictions on future market conditions. Sales profit variance is the difference between a company's actual and predicted sales figures. When a firm sells more than expected, it credits the gain to its accounting statements. If sales are lower than predicted, the firm debits the difference to its statements.
Sales Profit Variance Calculation
A company has made $500,000 in sales each year the past three years. It predicts sales of $500,000 for the following year on its financial statements. Due to poor market conditions, actual sales were $400,000. Sales Profit Variance = predicted - actual = $500,000 - $400,000 = $100,000 The firm overestimated annual sales by $100,000 and must debit its accounting statements by this amount.
http://www.ehow.co.uk
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