PV ratio, or Profit Volume ratio, is a financial metric used to measure the relationship between a company’s profit and its sales volume. It is calculated by dividing the contribution margin by the sales revenue. The contribution margin is the difference between the sales revenue and the variable costs, or the costs that are directly related to producing the product or service. The PV ratio indicates the percentage of sales revenue that is available to cover the fixed costs and generate a profit. The higher the PV ratio, the lower the sales volume required to achieve a given level of profit. Therefore, the PV ratio is a useful tool for companies to determine the break-even point and evaluate the profitability of their products or services.

The formula for PV ratio is: PV ratio = contribution margin / sales revenue. The PV ratio is expressed as a percentage, so it indicates how much of each sales dollar is available to cover fixed costs and generate a profit. For example, a PV ratio of 25% means that for every $100 in sales, $25 is available to cover fixed costs and generate a profit[[1]](https://cashflowinventory.com/blog/profit-volume-...