SAP Profitability Analysis General Overview
Profitability Analysis General Overview
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Created by Guest, last modified by Humberto Ordosgoitia on Jun 08, 2018
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This page is to be used to provide a General Overview of Profitability AnalysisThere are three levels to learn any concept of SAP.
Level One :Process Understanding
Level Two: Understanding how the process is mapped to SAP
Level three: Intricate field to field details
This is a Level one Explanation to COPA (Profitability Analysis)
Overview
Profitability Analysis (CO-PA) enables you to evaluate market segments, which can be classified according to products, customers, orders or any combination of these, or strategic business units, such as sales organizations or business areas, with respect to your company's profit or contribution margin.
The aim of the system is to provide your sales, marketing, product management and corporate planning departments with information to support internal accounting and decision-making.
Two forms of Profitability Analysis are supported: costing-based and account-based.
Costing-based Profitability Analysis is the form of profitability analysis that groups costs and revenues according to value fields and costing-based valuation approaches, both of which you can define yourself. It guarantees you access at all times to a complete, short-term profitability report. Cost of Goods sold is recognized after goods are billed and before being shipped.
Account-based Profitability Analysis is a form of profitability analysis organized in accounts and using an account-based valuation approach. The distinguishing characteristic of this form is its use of cost and revenue elements. It provides you with a profitability report that is permanently reconciled with financial accounting. Cost of goods sold is recognized after goods are shipped and before being billed.
From a technical point of view CO-PA is part of OLTP and thus resides in the same database as other transactions of ECC (formerly R/3). The main benefit is quicker reporting and access to the underlying transactions and line items. An OLAP-based reporting is optimized for querries and multidimensional pivoting with no access to transactions, but quicker slicing and dicing of reports. It's provided as an Excel Add-In and called Business Intelligence (formerly BW and BIW). The end result from the business perspective is the same: actual and planned financial results (values and key figures).
Definition
Profitability Analysis (CO-PA) enables evaluation of
- Market segments
o Classified cording to products, customers, orders or any combination of these,
Or
- Strategic business units
o Such as sales organizations or business areas,
With reference to company's profit or contribution margin.
Forms of Profitability Analysis
Costing-based Profitability Analysis
This form of profitability analysis that groups costs and revenues according to value fields and costing-based valuation approaches. It guarantees access at all times to a complete, short-term profitability report.
Thus, this method emphasizes on matching the revenues for goods and/or services provided (the value that a company gains as a result of sales) against the related expenses for those items (the value that is lost when products are transferred out of the company). Therefore, this accounting method displays profit and loss information in a manner optimized for conducting margin analyses, and as such it is optimal for the sales, marketing, and product management areas.
Account-based Profitability Analysis
This form of profitability analysis is organized in accounts and using an account-based valuation approach. The distinguishing characteristic of this form is its use of cost and revenue elements. It provides a profitability report that is permanently reconciled with financial accounting.
Thus, this method emphasizes on summarizing the activity and situational change over a period of time, for a given organizational unit. Therefore, this accounting method presents the revenues and primary expenses that have been incurred during a given period of time and the changes in stock value levels, work-in-process, and capitalized activities. As such, it is optimal for the production and profit center areas. Profitability Analysis (CO-PA) calculates profits according to cost-of-sales method of accounting. ProfitCenter Accounting (EC-PCA), on the other hand, supports both period accounting as well as the cost-of-sales approach.
Answers CO-PA can provide# Determining the largest and fastest growing customers- by studying the contribution of individual market segments or sales channels.
The definitions of both 'market segments'and 'performance figures' are freely definable, allowing for maximum flexibility in market evaluation. The definition of a market is configured in the system through the selection of characteristicsthat are to be the subjects of analyses. Performance figures may either be profit and loss account balances or freely defined value fields.
Market segments are normally some combination of information regarding customers, products, and the selling organization. Performance figures are normally measurements of quantities, revenues, discounts, surcharges, product costs, margins, period costs, etc.
Examining achievement of contribution margin goal/targets by the sales force - Margin goals of individual sales force/entities.
Sales Quantity
- Sales Revenue
- Customer discount
- Sales commission
- Direct sales costs
Net revenue
- Direct material costs
- Variable production costs
Contribution margin I
- Material overhead
- Fixed production costs
Contribution margin II
- Variances
Contribution margin III
- Overhead costs
Operating profit
Study the success of the most recent sales promotion for a product line- Success of Marketing Activities
Study the impact of a pricing strategy for a group of customers - Revenue and Cost Structure.
The results of Profitability Analysis can be analyzed with a multidimensional reporting tool, which allows the dynamic sorting and rearranging of data to provide multiple perspectives within a single report.
The method of determining period operating results in Profitability Analysis is based on the assumption that a company's success can be measured primarily on the basis of its transactions with other companies.
This sales-oriented approach in CO-PA means that no contribution to the organization's success is made until a sales transaction has been completed. Consequently, the products sold are transferred to CO-PA in accordance with the cost-of-sales accounting method and provide information on the sales revenue and sales deductions.
This net revenue is then compared with the cost of sales. These costs consist of the cost of goods manufactured of the products sold or services rendered plus any production variances known.
To round off the profitability data, overhead costs can also be assigned to profitability segments in the course of period-end closing activities.
Views of Profitability Management
Sales Reporting
CO-PA allows analyzing the profitability of segments of the market segments structured according to products, customers, orders, and summarizations of these and other characteristics as well as organizational units such as company codes or business areas. The aim is to provide sales, marketing, planning, and management organizations with decision-support from a market-oriented viewpoint.
Responsibility Reporting
EC-PCA allows analyzing internal profit and loss for profit centers. This makes it possible for evaluation of different areas or units within the company. Profit centers can be structure according to region (branch offices, plants), function (production, sales), or product (product ranges, divisions). Profit Center Accounting is a component of the module "Enterprise Controlling".
Integration
Profitability Analysis, along with Profit Center Accounting (EC-PCA), is one of the application components for profitability accounting.
Features
In the application component CO-PA, users can define own master data, the basic structures of this form of profitability analysis. This master data includes both, units (that are desired to be evaluated (characteristics)) and the categories (in which values analyzed).
In costing-based CO-PA, "value fields" to store data for analysis are defined.
In account-based CO-PA, the values are structured by account.
Using the SAP master data (customer, product, customer hierarchy) or CO-PA derivation rules, the system can derive additional characteristics based on the ones entered manually or transferred from primary transactions. The combination of characteristic values forms a multidimensional profitability segment, for which profitability can be analyzed by comparing its costs and revenues.
If company is reorganized into smaller units, such as sales districts or customer hierarchies, the assignments between characteristics for data that has already been posted can be changed.
Actual postings
Account based CO-PA: The actual postings represent the most important source of information in CO-PA. Both sales orders and billing documents from the Sales and Distribution (SD) application component can be transferred to CO-PA in real-time. In addition, an interface program is available to transfer external data to the R/3 System. Costs from cost centers, orders and projects, as well as costs and revenues from direct postings (G/L account postings in FI, orders received in MM, and so on) can also be transferred or settle costs from CO to profitability segments.
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