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.
Net Sales is the term used to describe the sales figure that has already
had sales returns and sales allowances subtracted from the total sales revenue,
but for financial analysis in Value Investor, we do not need to know the
returns and allowances figures.
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.
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