Explaining Core Terms in Margin Analysis

Master data in margin analysis include profitability characteristics and functional areas. Functional areas break down corporate expenditure into different functions, in line with the requirements of cost of sales accounting.

These functions can include the following:

• Production
• Administration
• Sales and Distribution
• Marketing
• Research and Development

For primary postings, the functional area is derived according to fixed rules and included in the journal entries. For secondary postings, the functional area and partner functional area are derived from the sender and receiver account assignments to reflect the flow of costs from sender to receiver.

Profitability characteristics represent the criteria used to analyze operating results and the sales and profit plan. Multiple profitability characteristics are combined to form profitability segments. The combination of characteristic values determines the profitability segment for which the gross margin structure can be displayed. A profitability segment corresponds to a market segment.

For example, the combination of the characteristic values North (Sales region), Electronics (Product group) and Wholesale (Customer group) determine a profitability segment for which the gross margin structure can be displayed.

In simplified profitability analysis, the cost and revenue information is always current and is always 100% reconciled with the income statement. This ensures greater transparency and makes the information easy-to-use. Transparency is achieved by the universal journal entry, which represents a single source of truth for financial data. Profitability reporting is based on income statement items, allowing drill-downs on any characteristics, for example the product group or even sales orders.

In addition to income statement items, which carry a real account assignment to a profitability segment, a profitability segment can be derived for additional income statement items and persisted in the journal entry. This is based on the "best-guess" principle, using the information that is available and known at that point in time. A refinement of the profitability characteristics at period end is still possible with the closing transactions, such as settlement, allocation, and top-down distribution. The technical basis for simplified profitability analysis is margin analysis. The profitability characteristics are determined through the operating concern and can be refined by the tools of profitability analysis. When the operating concern is generated, all characteristics not yet available, including customer-specific characteristics, are appended to the universal journal, and filled during posting.

Each activity relevant to margin analysis in the SAP system, such as billing, creates line items. General ledger line items can carry true or attributed account assignments to profitability segments.

1. In the case of a true account assignment, the profitability segment has already been determined by the sending application and the profitability segment number has been transferred to the general ledger. Only the costs and revenues for true account assignments are available in follow-on processes, such as allocations. Examples of true account assignments are as follows:
   • Goods issue item or billing document item in a make-to-order scenario
   • Manual FI posting to profitability segment
2. In the case of an attributed account assignment to a profitability segment, the costs and revenues are only shown in reports. Follow-on processes, which read line items from the database and transform them into new line items, do not take attributed profitability segments into consideration. Instead, newly created line items are re-attributed according to the specified mapping logic. The corresponding G/L account for attributed profitability segments must be one of the following account types:
   • Primary Costs or Revenue
   • Secondary Costs
   • Balance Sheet Accounts with a statistical cost element assigned

The derivation of attributed profitability segments is based on the true account assignment object of the general ledger line item. This object can be of the following types:

• Cost Center
• Project
• Sales Order
• Production Order (only for Engineer-to-Order process)
• Maintenance Order
• Service Document (service order or service contract)

After the profitability characteristics are derived, the resulting data is mapped to the G/L line item according to specific mapping rules. An attributed profitability segment is derived to fulfill the requirement of filling as many characteristics in the item as possible to enable the maximum drill-down analysis capability.