Rakesh Sahu
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CA Sandeep Bohra
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**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.
earl mercado commented
4 months ago
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rohit awasthi
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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.
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