The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any discounts allowed. The sales number reported on a company's financial statements is a net sales number, reflecting these deductions.
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This measure gives a more accurate picture of the actual sales generated by the company, or the money that they expect to receive. A company will book its revenue once the good or service is delivered or performed for the customer. However, in the case of returns, even after a good has been sold it can often be returned under a company's return policy. If the good is returned by the customer it is not considered a sale, as the customer will receive a credit or money back, so it needs to be deducted from the gross sales. The allowances for damage or missing good reflect the situations in which the goods are damaged in transit or are not what the customer expected. Most companies also will offer discounts, especially on credit sales where the customer pays off the amount early, which reduces overall revenue and is the reason for its deduction from gross sales. All these deductions from the gross sales are represented in the net sales figure.
Related Links:
Learn this easy-to-understand technique of analyzing a company's financial statements and reports. Introduction To Fundamental Analysis
Predicting sales growth can be something of a black art - unless you ask the right questions. Great Expectations: Forecasting Sales Growth
If used properly, this ratio can give you insight into a company's productivity and financial health. Doing More With Less: The Sales-Per-Employee Ratio
Learn what it means to do your homework on a company's performance and reporting practices before investing. Advanced Financial Statement Analysis
