Quick Definition
Total company sales minus sales returns, refunds, or allowances.
Explanation of Net Sales
Also called Net Revenue, and listed on the Income Statement, the Net Sales is the income generated by the company selling its products and/or services with any sales returns, refunds, or allowances subtracted.
Importance of Net Sales
Sales are typically a key income source for any company, and a upward trend is generally, but not always, a good sign. For example, if Net Sales of a company doubled from the year before, but the company's expenses tripled, then this may actually be a bad sign. That is why Net Sales is used in many of the profitability performance ratios, like
Gross Profit Margin,
Operating Profit Margin, and
Net Profit Margin.
