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The Profit Volume (PV) Ratio is the ratio of Contribution over Sales. It measures the Profitability of the firm and is one of the important ratios for computing profitabilty. The Contribution is the extra amount of sales over variable cost. Contribution is also Fixed cost plus profit.
Profit = Sales - Variable Cost - Fixed Cost.
Thus Contribution is:
Profit + Fixed Cost = Sales - Variable Cost.
Therefore PV Ratio = (Contribution/Sales)X100. (This as a percentage of sales)
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