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What is Profit Volume Ratio and Significance of PV Ratio

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Rakesh Sahu asked over 2 years ago

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 CA Sandeep Bohra answered over 2 years ago

**P/V Ratio:** P/V Ratio (Profit Volume Ratio) is the ratio of contribution to sales which indicates the contribution earned with respect to one rupee of sales. It also measures the rate of change of profit due to change in volume of sales. Its fundamental property is that if per unit sales price and variable cost are constant then P/V Ratio will be constant at all the levels of activities. A change is fixed cost does not affect P/V Ratio. It is calculated as under: (Contribution * 100) / Sales (Change in profits * 100) / (Change in sales) **Significance** This ratio determines profitability of a line of product & also overall profitability of a number of products; This ratio compares the profitability of different lines of products, sales, companies, factories etc. This ratio calculates break-even sales, profit at different levels of output, turnover which may be required for a desired profit or to offset reduction in price or to meet increased expenditure.

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Data?1494421730 rohit awasthi answered over 2 years ago

Dear friend > Profit Volume Ratio (PV Ratio) The Profit Volume Ratio (PV Ratio) is the relationship between Contribution and Sales Value. It is also termed as Contribution to Sales Ratio. Significance of PV Ratio 1. PV Ratio is considered to be the basic indicator of the profitability of the business. 2. The higher the PV Ratio, the better it is for a business. In the case of a firm enjoying steady business conditions over a period of years, the PV Ratio will also remain stable and steady. 3. If PV Ratio is improved, it will result in better profits. Thanks

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