Profit margin on gross margin. Return on investment is the level of return on investment (ROI)

After one year, you see that all the clients who came to you thanks to the ad brought in a total of $ 2,000 in revenue. Calculate the efficiency of investments (in this case, advertising):

(Amount earned / Amount spent) * 100% = (2000 / 500) * 100% = 400%.

We can conclude that for every dollar spent on advertising, you received $4 in revenue.

Example 2: You are going to invest in Apple stock and buy securities in the amount of $100. After a certain time period, their value increases to $120. Formula how to calculate profitability:

(Amount earned / Amount spent) * 100% = (120 / 100) * 100% = 120%.

So, for every dollar invested, there is a net profit of 20 cents.

As you can see, the formulas for calculating such an important indicator as profitability are, in general, simple. It is much more difficult to predict its size in the future, but that's another story. In the meantime, you can freely evaluate which project turned out to be the most profitable for you.

RETURN ON RESERVESProfitability (aka profitability)
inventory is the ratio
gross or net profit of the company
behind certain period time to
average
meaning
prime cost
inventory for the same period.
RTZ calculation formula (period - 1 year)

RETURN ON RESERVES

RETURN ON RESERVES

RETURN ON RESERVES

RETURN ON RESERVES

RETURN ON RESERVES

RETURN ON RESERVES

STOCK IN STOCK

Determining the quantity of goods in warehouse branches

10. SCHEME OF THE WAREHOUSE SYSTEM OF THE ENTERPRISE

11. Remains of inventory by branches

12. SYSTEM PARAMETERS

13. Method of solution

The profitability ratio of the company's reserves shows that its condition has improved over the years, and in 2007 its value is less than the industry average by 0.71 times, which is an acceptable factor. So, in 2007, the enterprise received 7.06 rubles for 1 ruble of its reserves. net profit, and in 2009, 1 ruble of invested funds accounted for 376.34 rubles, which is 208.41 rubles. more than in 2008. This indicates that OOO "Almetyevskoye Department of Technological Transport-3" effectively uses its stocks to make a profit.

An analysis of the profitability ratio of raw materials, materials and similar values ​​of LLC "Almetyevsk management of technological transport-3" shows that in 2008 - 2009. its values ​​are significantly higher than the industry average. In 2007, the value of the coefficient was practically equal to the industry average, in 2008 it exceeded the industry average by 25.31 times, and in 2009 by 78.81 times. In general, there is a continuous significant upward trend, indicating an increase in the efficiency of the use of raw materials, materials and similar values.

Analyzing the profitability ratio of deferred expenses, there is a tendency to a significant increase. If at the beginning of the period under review, the ruble of deferred expenses accounted for 60.53 rubles. net profit, then at the end of the period 933.69 rubles. net profit. In 2008, the value of the coefficient increased by 924.12%, and in 2009 it decreased by 0.95 times. In all the considered periods, the value of the coefficient is much higher than the industry average value. This indicates that LLC "Almetyevsk management of technological transport-3" effectively uses the costs of future periods.

After analyzing the profitability indicators, we can say that there is a tendency to their significant increase. The profitability of the analyzed ratios is at a good level. This suggests that LLC "Almetyevsk management of technological transport-3" effectively uses the elements of stocks in order to make a profit.

Assessing the state current assets, it is important to study the quality and liquidity of receivables and give a general description of the receivables portfolio.

To analyze the effectiveness of receivables management, we calculate the indicators of its turnover and the duration of one turnover, presented in table 10.

Table 10

Analysis of the turnover and duration of one turnover of receivables of LLC "Almetyevsk management of technological transport-3" for 2007 - 2009.

The analysis of the turnover ratio of receivables of Almetyevsk Management of Technological Transport-3 LLC shows an unfavorable downward trend, during all analyzed periods it significantly exceeds the industry average value.

As a rule, excess inventory of goods leads to a decrease in the liquidity of the business and an increase in costs. In search of a compromise in inventory management, companies go through a difficult path of trial and error. This problem can be solved by analyzing reserves and evaluating the return on investment in reserves.

It is very common for sales staff to build up inventory that far exceeds the actual needs of the business, resulting in excess inventory. As a result, the liquidity of the business is sharply reduced and possibly even bankruptcy. To prevent this is the task of the financial director. Thinking through the inventory management system, you need to get answers to the following questions:

• whether the company will be able to satisfy all the requirements of buyers quickly and in the required volume, and whether the warehouse contains goods that the immediate delivery of which buyers do not need;
• what part of the funds is invested in "dead" and excess stocks;
• how much inventory will reduce storage costs and not significantly affect the company's revenue;
• Will the expansion of the assortment increase the profitability of the company;
• how to minimize storage and other operating costs.

In order to answer these questions, you can use a few simple tips.

How to get started with inventory management

In order to determine which products a company can easily abandon, it is useful to analyze the assortment, taking into account the contribution from the sale of each product to total revenue. Majority information systems classify or rank the items in stock based on the annual gross value of inventory sold. For example, products can be arranged in descending order according to sales volume:

• category A products provide 80% of sales;
• category "B" - 15% of sales;
• category "C" - 4% of sales;
• category "D" - 1% of sales;
• category "X" items have not been sold in recent months and are "dead" stock.

However, this ranking allows you to identify items that increase inventory turnover (that is, profit opportunities), but does not help determine which items to stock. Let us show this with an example (see Table 1).

Table 1 Implementation Report

The cost of goods sold for A1 and A2 is high, but buyers ordered only two and four times in the last year. If you keep a stock of these goods in stock, then a lot of money will be "bound" as a result of investing in them. Accordingly, such goods can be classified as “specially ordered”, that is, they must be ordered for delivery at a separate request of the buyer, and it makes no sense to create a stock for them. On the other hand, product A3 with an annual sales value of $6,500 is likely to be categorized as C.

However, customers need this product 50 times a year (about once a week), and although the annual revenue generated by it is small, maintaining a stock of this product in the warehouse is necessary for quality customer service. Thus, it is advisable to maintain a stock of goods only for those goods that are more often in demand among buyers.

Principles for Effective Inventory Management

According to Alexandra Konyukhova, CEO OJSC "Kulebaksky Metallurgical Plant", effective inventory management at the enterprise is based on three main principles:

1) stocks of raw materials and materials with a high cost should be minimal;

2) safety stocks should be sufficient to fulfill the operational orders of key customers. It can be recommended to limit the number of key customers. In our company, from the entire mass of buyers, we have identified ten key customers;

3) the creation of excess reserves is justified if there is confidence that they will be in demand and the growth in prices for them will make it possible to compensate for the cost of credit resources.

Personal experience
Andrey Krivenko,

The classification of goods into categories (ABC) should also depend on the company's obligation to supply goods to customers. For example, when working with networks, it does not matter which product is not delivered - high-turnover or not very high. Money (due to paying a fine) and the company's reputation will be lost in any case.

As for the goods of category "X", they bear only costs for the company, since they were not sold during the year and did not contribute to the formation of the company's profit. Therefore, they must either be eliminated or kept at a minimum level. Moreover, the decision to maintain the minimum amount of stocks can be made only if they satisfy two conditions:
- there is confidence that the product will be sold in the future. For example, this applies to new products in the range, which the buyer guaranteed to purchase;
- the goods can be demanded by the buyer at any time. At the same time, its absence can negatively affect the reputation of the company.

Thus, the CFO should insist that the classification of goods be carried out not only by cost of goods sold, but also by the number of orders. It would be useful to produce a report that would list, in descending order according to the value of current stocks, the low-order items over the last 12 months.

Personal experience
Maria Chekadanova, CFO of Kare group of companies (Moscow)

Holding the position of treasurer of the group of companies "SV" ("Technosila") from 1999 to 2003, I based my recommendations on setting the optimal inventory on the results of traffic simulation working capital(OK) companies. The dynamic simulation model of OK included linear programming problems. The commercial department developed a product line (mandatory assortment) and a sales plan, in which it determined what, in what quantity and at what price is sold, as well as the risks of selling the goods.

Further, taking into account the time of delivery of goods from suppliers to the warehouse, the minimum planned turnover of a heading was calculated. Merchants usually do not take into account that the order of goods must be linked to the receivables and payables of suppliers. With linear programming, priority areas (commodity groups) of the distribution of financial resources were selected according to the criteria of activity (parameters of the objective function): product profitability, working capital profitability.

The system of restrictions was formed from such indicators as market capacity, the risk of not receiving a given income, the planned inventory turnover, suppliers' accounts payable and receivable, the minimum consignment of goods, warehouse capacity, credit resources and their cost, etc.

It should not be forgotten that modeling is a tool for acceptance management decision. The professionalism of the decision maker lies in the choice of an alternative that combines the result of formalized assessments and political calculations.

Get rid of excess inventory on time

The inventory management system must take into account that it is important not only to create stocks of those goods that have the highest turnover, but also to ensure that they do not become redundant. In other words, the company needs to get rid of not only "dead" stocks, but also from any inventories stored in the warehouse, which, taking into account existing sales volumes, are enough for more than a year.

Personal experience
Andrey Krivenko, Financial Director of Agama (Moscow)

When building an inventory management system, one must take into account the company's strategy, which, for example, should determine the optimal ratio between working capital efficiency, cost optimization and the required level of customer satisfaction.

According to world experience, the panacea for excess stocks is an accurate forecasting of sales in the context of goods. There are few industries in Russia in which this is possible, but it is necessary to strive for this.

Oleg Kostikov, Director for Economics, Baltiysky Zavod JSC (St. Petersburg)

In accordance with the schedule for the construction of factory orders (shipbuilding and machine building), a plan is drawn up for the procurement of raw materials, materials and equipment for the month, quarter and year. Stocks of raw materials and materials that our suppliers constantly have are not created at the plant.

It should be noted that such suppliers must be located in our region - in St. Petersburg and Leningrad region so that the delivery time is minimal and clearly predictable. With regard to, for example, rolled metal, the situation is different.

So, one of the main suppliers of marine steel to our plant - OAO Severstal - accepts orders for metal two months before the date of delivery. The resulting rolled metal is delivered to the warehouse and consumed in production in accordance with the construction schedule of a particular order.

After the completion of construction, unused stocks of raw materials and materials often remain, some of which can be directed in the future to fulfill other production orders, and some can be sold.

At our plant, there is a commission on stocks, whose task is to analyze the volumes and range of excess stocks and take measures to reduce them. The commission meets once a week for meetings. In 2013, "illiquid assets" were sold in the amount of 10 million rubles.

To eliminate "dead" stocks at the plant, it is also used material incentives employees responsible for this, to which up to 3% of the amount of sold illiquid stocks is allocated. Each such payment is made on the basis of a separate order of the General Director.

While the advice seems simple enough, it's not uncommon to find yourself in a situation where a company is building up inventory beyond its actual need. Let us give an example from the experience of the author of the article. A trading company placing an order for at least $1,000 worth of goods once a week could count on its delivery at the expense of the supplier. Moreover, the company's management found out that not all goods were sold to customers.

However, since it was in stable demand, purchases were still made with the expectation that eventually all goods would be sold out. As a result, after some time, a 14-month supply of goods was formed in the company's warehouse. And although consumer demand on it remained high, the surplus of goods led to the fact that the coefficient of annual turnover of the stock decreased (see Table 2).

table 2

Category "A" items have the highest value (i.e., the most funds pass through inventory). However, stocks of $88,762 (13%) are in excess of the stock required for 12 months. Excess inventories were formed because they were purchased at the lowest price. Management must recognize that no profit will be made until inventory is sold to a customer or used up in a profitable activity. Overall, 31% of the total value of the company's inventory was "bound" due to excess inventory.

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It should be noted that all “dead” stocks are classified as surplus: since they were not sold all last year, the stock turned out to be more than necessary for a year. If the company gets rid of excess stocks of all goods of categories "A" and "B", then the total turnover will increase from 3.5 to 4 turnovers per year. The total cost of inventories will be reduced from $1,488,458 to $1,314,168, and the money released can be used to finance other activities of the enterprise without damaging the business (see Table 3).

Overstocking can be avoided by following these simple rules:

• when buying goods, you should take into account the existing need, and not the possibility of obtaining a discount or preferential terms supplies. It can be recommended to draw up so-called DRP reports (Distribution Requirements Planning - stock supply planning) for planning the need for stocks (see Table 4);
• it is necessary to establish a fixed volume for each item of reserves, which cannot be exceeded.

Table 3 Analysis of turnover and inventory structure

Table 4 DRP report

Personal experience
Denis Saenko, Financial Director of Razdolie Group of Companies LLC (Moscow)

Inventory management is complicated by sectoral price dynamics throughout the year. This applies to cost and finished products, and the resources needed to prepare the production and release of products. For example, capital construction work is carried out at the group's enterprises during the spring-summer period, while the cost of materials needed to perform the work is increased by suppliers at the same time. In this case, the head of the financial block has to partially advance deliveries on the main capital-intensive positions in order to fix the prices of suppliers and avoid additional costs when prices rise.

Inventory management system and return on investment

Before making a decision about the feasibility of maintaining a stock of goods, it is necessary to analyze the return on investment in stocks. Often, sales managers tend to buy the product that has the highest profitability, which is defined as the ratio of profit from sales to total sales. This is understandable, since in most cases the salary of managers depends on the profit received from sales. Motivated in this way, salespeople may try to convince the purchasing department to purchase large volumes of goods in order to reduce their cost by obtaining volume discounts and, as a result, increase the profitability of sales.

Personal experience
Victor Ostapenko, Head of the Department of Budgeting, Business Planning and Analysis of the Planning and Economic Department of the Euroservice Group of Companies (St. Petersburg)

Using the product profitability indicator is not enough to make inventory management decisions. The company is created by the owners to make a profit on invested capital, and here the best indicator is ROE (Return on Stockholder's Equity) - return on capital invested by shareholders. The same indicator should be used in inventory management. In other words, invest in stocks of those inventories, the use of which in circulation increases ROE.

Sergei Vorobyov, financial director of Relief-Center LLC (Ryazan)

In our country, unfortunately, there are no suppliers capable of ensuring the constant availability of the range declared by them. Therefore, sometimes we have to "stock up" with certain items in order to prevent the "falling out" of the groups of the main assortment. When deciding on an additional increase in stocks for any group, we compare the proposed additional discount with the attracted financial resources and the possibilities of storage facilities at the current moment.

If the offered discount is more than the cost of attracted funds and there are opportunities in the warehouse to place additional consignments of goods, then a decision is made to purchase a larger volume with the expectation of its sale in one to two months. The minimum balance for various product groups ranges from 7 to 30 days (until stocks are zero). Meetings are held weekly with the purchasing department to determine the volume of "dead" or poorly selling goods. Some items are being returned to suppliers, while others are subject to price reduction programs.

Although such actions may seem justified, they often lead to an increase in inventories and a decrease in the profits of the company as a whole.

Return on investment = (Annual revenue - Cost of goods sold in the year) / Inventory investment

For example, let's say you sell a $4,000 item that costs $3,000 and has an average inventory investment of $1,000. In this case, the return on investment in inventory will be equal to one [(4000 - 3000)/1000]. This means that the company earns $1 of gross profit for every dollar invested in inventory. If the inventory investment is increased to $5,000, the ratio will be 0.2. In other words, as a result of increasing the average inventory, the company will receive only 20 cents per year for every dollar invested in inventory.

Accordingly, the CFO will need to push for a review of the warehousing policy for any product or group of products that have a profit margin of less than 1. It may be more appropriate to purchase goods in smaller quantities, albeit at a higher price, in order to increase this indicator.

• Proven ways to manage inventory to help maximize company profits

Let's consider one more example. A company has two options for purchasing an item that sells $10,000 per year:

1. Cost of goods sold = $7,500.
Inventory investment = $3,000.
Return on inventory investment = 0.83 [(10,000 - 7500)/3000].

2. Cost of Goods Sold = $7,750 (Higher cost of purchase due to no volume discounts).
Inventory investment = $2,000.
ROI = 1.13 [(10,000 - 7750)/2000].

Although the return on sales will be lower in the second case, the profit of the company as a whole will be higher, since the return on investment in inventory increases.

In conclusion, it should be noted that effective inventory management largely depends on how well the inventory movement plan is drawn up and the required volume is estimated. The CFO should never be led by the sales force by overstocking well-meaning customers. The main task of the CFO is to abstract from the subjective business decisions of sellers and buyers in order to objectively determine what the real profit of the company is and to ensure that every ruble invested contributes to the success of the enterprise as a whole.

Personal opinion
Igor Ponomarev, Financial Director of Jenser Service LLC (Moscow)

In my opinion, when discussing the problem of inventory in a warehouse, there are two important things to keep in mind that the author does not mention:
- you can not analyze the warehouse without taking into account the value of money. The author absolutely correctly notes that the main thing is the profit of the organization. Thus, losing sight of the value of money invested in inventory and focusing only on turnover can miss out on optimal solutions;
- V modern conditions it must be remembered that when analyzing stock statistics for previous periods, we are dealing primarily with probabilistic figures, which means that we must not forget about the theory of probability. If the demand is normal distribution, then there is a well-developed mathematical apparatus that allows you to develop optimal solutions in the field of inventory management.

As far as our business is concerned, the distribution of demand for cars is not normal, so we are forced to use Monte Carlo simulation to determine the optimal warehouse (there are many specialized software solutions, but we use Excel). I can say that the cost of money greatly affects the optimal solution.

So, after last year’s reduction in bank loan rates, we realized that it would be optimal to increase stocks in the warehouse, and those solutions (colors, configurations, models) that were previously unavailable to us due to the high cost of money became possible.

Vladislav Khominsky, CEO of Nevskaya consulting company(Saint Petersburg)

The recommendations presented in the article do not cause serious objections - they are quite obvious and simple. And such recommendations really often bring serious benefits. What kind of optimization and fine-tuning can we talk about if the entire warehouse is crammed with unnecessary goods? The article does a good job of showing how excess inventory leads to a decrease in profits, but nothing is said about how decisions should be made that will lead to an increase in economic efficiency.

One might also get the impression that the main task financial services is to prevent an increase in stocks in the warehouse. Actually it is not. When deciding whether to place orders with suppliers, all significant costs and revenues must be taken into account, which vary depending on this decision and therefore affect profits. It is often the case that a decision that leads to a significant increase in inventory is profitable if it entails improved customer service and reduced losses due to shortages.

Thus, financial directors can advise:
- think not only about what to do with excess stocks, but also about what decisions lead to their appearance;
- remember that there are no exact forecasts of demand and when making decisions on purchases, it is necessary to take into account possible deviations every time;
- when deciding to place orders with suppliers, take into account not only the cost of storing inventory, but also all possible losses and benefits when changing the decision;
- establish adequate indicators for evaluating the activities of purchasing managers, taking into account not only the amount of stock in the warehouse.

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