How sales can be down but profits be up
The news today of Marks & Spencers results had many people asking similar questions on TV this morning.
How can a company have lower sales, but higher profits?
Easy answer to this – each item they sell is more profitable.
For instance, if you are selling wiggets (everyone sells wiggets!) for £10, and you paid £6 for them, you would be making £4 per sale.
If you had 20 sales, you would make a profit of £80.
However, in year 2, you were selling wiggets for £11 and you still paid £6 for them, you would be making £5 per sale.
Now, you only sell 17 wiggests.
So your sales are down by 15%.
Your profits would be £85.
Profits are up by 6%.
Remember the old business saying, Turnover is Vanity, Profit is Sanity, Cashflow is King.
Originally posted 2008-05-20 10:17:47.
