I'm passing trhough an issue that maybe is very simple for somebody has passed too.
I have to calculate the margin of a sale, it goes good but the problem comes when I have a minus.
Example
Sale price without VAT: 300.00
Cost price without VAT: 100.00
Calculation: (300.00-100.00)/300.00
Real life Example:
Sale price without VAT: 300.00
Cost price without VAT: -2100.00
Calculation: (300.00--2100.00)/300.00 (Totally Wrong).
What to do in this case? Has somebody passed over this?
Any help is really appreciated.
The key point is that your margins of sale are not ratio scaled. You don´t have a absolute zero point. Therefore the negative ratio is not meaningful.
But there is a way to handle this problem by applying the accrual principle.
Lets say you sale $100$ products in year $2015$ with the given selling price and cost price.
In year $2016$ $10$ of these products are returned and $50$ products are sold.
Now you act as if the $10$ returned products has never been sold in $2015$.
The margin in 2015 becomes $\frac{(300-100)\cdot (100-10)}{100\cdot (100-10)} =\frac{200\cdot 90}{100\cdot 90}=200\%$
And the margin in 2016 is $\frac{(300-100)\cdot 50}{100\cdot 50} =200\%$
Since the difference between the selling price and the cost price has not changed from the year $2015$ to the year $2016$ the margin is constant as well.