home Interpreter Profit threshold formula. Financial threshold of profitability: what is the use of this indicator

Profit threshold formula. Financial threshold of profitability: what is the use of this indicator

Breakeven point- this is the volume of production and sales of products at which expenses will be offset by income, and in the production and sale of each subsequent unit of production, the enterprise begins to make a profit.

In other words, the break-even point is such a moment when the company fully covers the losses and the company's activities begin to bring real profit.

The break-even point is the sales volume at which the company's profit is zero. Profit is the difference between income and expenses.

The break-even point is measured in physical or monetary terms. This indicator of the break-even point allows you to determine how many products need to be sold, how much work to perform, or services to provide, so that the company's profit would be equal to zero.

Thus, at the break-even point, income covers expenses. If the break-even point is exceeded, the company makes a profit, if the break-even point is not reached, then the company incurs losses.

What is the purpose of the breakeven point?

The break-even point calculation allows you to:

determine the optimal cost of selling products, performing work or providing services;

monitor changes in the break-even point indicator in order to identify existing problems in the process of production and sale of products, performance of work, provision of services;

analyze financial condition enterprises;

find out how a change in the price of products sold, work performed, services provided or costs incurred will affect the resulting revenue.

Break-even point and practice of its use

Break-even point analysis is used for various purposes.

Let's consider some directions and purposes of using this indicator.

We give in the table the goals of the possible use of the break-even point indicator in practice:

Users	Purpose of use
Internal users
Development/Sales Director	Calculation of the optimal price per unit of goods, calculation of the level of costs when the company can still be competitive. Calculation and preparation of a sales plan
Owners/Shareholders	Determination of the volume of production at which the enterprise will become profitable
Financial analyst	Analysis of the financial condition of the enterprise and the level of its solvency. The further the enterprise is from the break-even point, the higher its threshold of financial reliability
Production director	Determination of the minimum required volume of production at the enterprise
External Users
Lenders	Assessment of the level of financial reliability and solvency of the enterprise
Investors	Evaluation of the effectiveness of enterprise development
State	Enterprise sustainable development assessment

The use of the break-even point model is used in management decisions and allows you to give general characteristics the financial condition of the enterprise, assess the level of critical production and sales in order to develop a set of measures to increase financial strength.

Steps to determine the break-even point

In practice, there are three stages to determine the break-even point of the enterprise.

Collection necessary information to carry out the necessary calculations. Evaluation of the level of production volume, product sales, profit and loss.

Calculation of the size of variable and fixed costs, determination of the break-even point and safety zone.

Grade required level sales/production to ensure financial stability enterprises.

The task of the enterprise is to determine the lower limit of its financial stability and create opportunities for increasing the security zone.

Calculation of the break-even point and variable, fixed costs

To find the break-even point, you need to determine which of the costs of the enterprise are related to fixed costs and what costs are included in variable costs.

Since these costs affect the determination of the break-even point and are mandatory components for calculating the break-even point.

Fixed costs include: depreciation deductions, salaries of administrative and management personnel with deductions from wages to off-budget funds, rent of office premises and other expenses.

Variable costs include: materials, components, semi-finished products used in production, fuel and energy for technological needs, wages of key workers with deductions from wages to off-budget funds and other expenses.

Fixed costs do not depend on the volume of production and sales and do not change over time.

At the same time, the following factors can affect the change in fixed costs: growth / drop in the productivity of the enterprise, opening / closing production shops, rent increase/decrease, inflation and other factors.

Variable costs depend on the volume of production and change along with the change in volume. Accordingly, the greater the volume of production and sales, the greater the variable costs. Variable unit costs do not change with the volume of production. Variable costs per unit of output are conditionally fixed.

Formula for calculating the break-even point

To calculate the break-even point, you need the following indicators:

1. Calculation of the break-even point (BBU) in kind:

BEPnat = TFC / (P-AVC)

BEPden = BEP nat * P

Variable costs for the production of a unit of output (AVC): 100 rubles;

Selling price (P): 200 rubles.

Substitute the original values in the formula:

BEP nat = 50,000 / (200-100) = 500 pieces.

BEPden \u003d 500 pcs. * 200 rubles. = 100,000 rubles.

2. Calculation of the break-even point (BBU) in monetary terms:

BEPden = (TR* TFC) / (TR-TVC)

You can also calculate the break-even point through marginal income.

MR = TR-TVC, or MR per unit =P-AVC

KMR = MR / TR, or KMR per unit = MR per 1 unit /P

Based on the obtained values, we obtain:

BEPden = TFC / KMR

For clarity, consider a numerical example:

Fixed expenses of the enterprise (TFC): 50,000 rubles;

Variable expenses (TVC): 60,000 rubles;

Revenue (TR): 100,000 rubles.

Substitute the values in the formula:

BEPden \u003d (100,000 * 50,000) / (100,000-60,000) \u003d 125,000 rubles.

MR = 100,000-60,000 = 40,000 rubles

KMR = 40,000 / 100,000 = 0.4

BEPden \u003d 50,000 / 0.4 \u003d 125,000 rubles

Thus, it can be seen that the BEP values calculated by the two formulas are equal.

If an enterprise sells its goods for 125,000 rubles, then it will not suffer losses. As for the coefficient of marginal income, it shows that each ruble of revenue received from above will bring in this case 40 kopecks of profit.

findings

The break-even point model allows you to determine the minimum allowable limit of sales and production for the enterprise. This model can be well used for large enterprises with a stable market.

The calculation of the break-even point allows you to determine the safety zone - the remoteness of the enterprise from the critical level at which profit is zero.

Profitability threshold (break-even point, critical point, critical volume of production (sales)) - this is the sales volume of the company at which the sales proceeds fully cover all the costs of production and sales of products. To determine this point, regardless of the methodology used, it is first necessary to divide the forecasted costs into fixed and variable.
The practical benefit of the proposed division of costs into fixed and variable costs (the amount of mixed costs can be neglected or proportionally attributed to fixed and variable costs) is as follows:
First, it is possible to define precisely the conditions for a firm to stop producing (if the firm does not recover the average variable costs, then it must stop producing).

Secondly, it is possible to solve the problem of profit maximization and rationalization of its dynamics under the given parameters of the firm due to the relative reduction of certain costs.
Thirdly, such a division of costs allows us to determine the minimum volume of production and sales of products at which the business breaks even (profitability threshold) and to show how much the actual volume of production exceeds this indicator (the financial safety margin of the company).
The profitability threshold is determined as proceeds from the sale, in which the company no longer has losses, but does not receive any profit, that is, the financial resources from the sale after reimbursement of variable costs are only enough to cover fixed costs and the profit is zero.
Break-even point in physical terms for the production and sale of a specific product ( Tb ) is determined by the ratio of all fixed costs for the production and sale of a particular product ( Zpost ) to the difference between the price (revenue) ( C ) and variable costs per unit of product ( Itching. per. ):

Break-even point in value terms is defined as the product of the critical volume of production in physical terms and the price of a unit of output.
The calculation of the profitability threshold is widely used in planning profits and determining the financial condition of the enterprise. Two rules for entrepreneurs:
1. It is necessary to strive for a situation where revenue exceeds the profitability threshold, and to produce goods in kind that exceed their threshold value. This will increase the company's profits.
2. It should be remembered that the force of impact production lever the more, the closer production is to the threshold of profitability, and vice versa. This means that there is a certain limit of exceeding the threshold of profitability, which must inevitably be followed by a jump in fixed costs (new means of labor, new premises, increased costs of managing the enterprise).
The company must necessarily pass the threshold of profitability and take into account that after the period of increasing the mass of profits, there will inevitably come a period when, in order to continue production (increase output), it will simply be necessary to sharply increase fixed costs, which will inevitably result in a reduction in income received in short term arrived.
Taking specific solution about the volume of production, the entrepreneur should reckon with these conclusions.
Margin of financial strength shows how much you can reduce the sale (production) of products without incurring losses. Excess real production above the threshold of profitability there is a margin of financial strength of the company:
Financial safety margin = Revenue - Threshold of profitability
The margin of financial strength of an enterprise is the most important indicator of the degree of financial stability. The calculation of this indicator makes it possible to assess the possibility of an additional reduction in revenue from sales of products within the break-even point.
In practice, there are three situations that will affect the amount of profit and the financial strength of the enterprise in different ways: 1) the volume of sales coincides with the volume of production; 2) the volume of sales is less than the volume of production; 3) the volume of sales is greater than the volume of production.
Both the profit and the margin of financial safety obtained with an excess of output are less than if sales volumes correspond to production volume. Therefore, an enterprise interested in improving both its financial stability and financial result, should strengthen control over production planning. In most cases, an increase in the inventory of an enterprise indicates an excess of production. Directly about its excess is evidenced by an increase in reserves in part finished products, indirectly - an increase in stocks of raw materials and starting materials, since the company bears the costs for them already when they are purchased. A sharp increase in inventories may indicate an increase in production in the near future, which should also be subjected to a rigorous economic justification.
Thus, upon detection of an increase in the company's inventory in reporting period we can conclude about its impact on the value of the financial result and the level of financial stability. Therefore, in order to reliably measure the value of the financial safety margin, it is necessary to correct the sales proceeds by the amount of the increase in the company's inventory for the reporting period.
In the last variant of the ratios - with a volume of sales greater than the volume of manufactured products - the profit and the margin of financial safety are greater than with the standard construction. However, the fact of selling products that have not yet been produced, that is, in fact, does not exist yet in this moment(for example, when prepaying a large consignment of goods that cannot be produced for the current reporting period), imposes additional obligations on the enterprise that must be met in the future. Exist internal factor, which reduces the actual value of the financial safety margin, is a hidden financial instability. A sign that an enterprise has hidden financial instability is a sharp change in the volume of stocks.
So, to measure the financial strength of an enterprise, the following steps must be taken:
1) calculation of the margin of financial strength;
2) analysis of the impact of the difference in sales volume and production volume through the correction of the value of the financial safety margin, taking into account the increase in the inventory of the enterprise;
3) calculation of the optimal increase in the volume of sales and the limiter of the financial safety margin.
The margin of financial strength, calculated and adjusted, is an important comprehensive indicator of the financial stability of an enterprise, which must be used in predicting and ensuring the comprehensive financial stability of an enterprise.
Operating leverage effect is that any change in sales revenue leads to an even stronger change in profit. The action of this effect is associated with the disproportionate impact of conditionally fixed and conditionally variable costs on the financial result when the volume of production and sales changes.
The higher the share of semi-fixed costs in the cost of production, the stronger the impact of operating leverage.
The strength of the operating leverage is calculated as the ratio of marginal profit to profit from sales.
Marginal profit is calculated as the difference between the proceeds from the sale of products and the total amount of variable costs for the entire volume of production.
Profit from sales is calculated as the difference between the proceeds from the sale of products and the total amount of fixed and variable costs for the entire volume of production.
Thus, the size of financial strength shows that the company has a margin of financial stability, and hence profit. But the lower the difference between revenue and profitability threshold, the greater the risk of losses. So:

the force of the operating lever depends on relative magnitude fixed costs;
the strength of the operating leverage is directly related to the growth in sales volume;
the force of the impact of the operating leverage is the higher, the closer the enterprise is to the threshold of profitability;
the strength of the impact of the operating lever depends on the level of capital intensity;

the strength of the impact of operating leverage is stronger, the lower the profit and the higher the fixed costs.

Profitability- This is an indicator of performance in the use of labor, economic, material and natural resources.

Profitability threshold- this is a set of sales products, thanks to which the company covers its costs for its production without making a profit from sales, that is, it goes to zero.

If we talk about trading companies, then profitability is expressed by specific numerical characteristics, that is, the correlation of profit and investment. A business is profitable if at the end of the year the company is in the "plus".

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The profitability ratio is the ratio of profit to resources (tangible assets, flows, etc.) that form this profit.

Most often, profitability is determined as a percentage. But in some cases, it can be presented in the form of profit per unit of invested assets, or in profit from each financial unit earned.

Depending on the type entrepreneurial activity profitability is classified as follows:

The overall profitability of tangible assets. It is formed by the ratio of profit (before taxes) to the totality of tangible assets attracted to the company for a fixed period of time.
Product profitability. It is determined as the result of dividing the profit from the sale of goods by the costs of its manufacture.
Profitability of production. Production is considered profitable, where the profit from investments exceeds the costs of manufacturing goods. Among the methods that have an impact on the growth of profitability, there is a reduction in the cost of manufactured products and an improvement in quality properties.

General view of the mathematical expression of profitability:

P \u003d P / I * 100%, where:

R– profitability;
P– profit received during the implementation of the project;
And- investment in the project.

Determination of the threshold of profitability

It is determined by the formula:

Profitability threshold = Fixed costs / ((Revenue from sales - Variable costs) / Revenue from sales).

When the profitability threshold is reached, the company has neither profit nor loss.

The value of the break-even point is of great importance for investors, as it reflects the ability to repay the debt on the loan. The reliability of the enterprise is determined by the excess of the level of sales over the value of the threshold of profitability.

The degree of remoteness of the value of the profitability of the enterprise from the break-even point is determined by the margin of financial strength.

To obtain the value of the financial safety margin, it is necessary to find the difference between the actual number of goods produced and the number of goods produced at the break-even point.

Calculation formulas

Calculating the value of the break-even point, we get the marginal amount of income from the sale of products. Selling goods at a lower price makes the business unprofitable.

Thus, the company will make a profit only when the income becomes higher than the marginal value of profitability.

In terms of money

Prd \u003d VxZpost / (V - Zperem), where:

Prd- break-even points in value terms;
AT
Zperem- variable costs;
Zpost- fixed costs.

in kind

Prn \u003d Zpost / (B - ZSperm), where

Prn– profitability threshold, value in units of goods;
Zpost- the value of fixed costs;
ZCchange- the average value of variable costs (for 1 product);
AT- total level of income (revenue);

Examples

Example of calculation in monetary terms:

The company sells 200 pcs. goods at a price of 300 rubles / 1 pc.
Variable costs in the cost of a unit of goods are equal to 250 rubles.
Direct costs in the cost of a unit of goods - 30 rubles.
Indirect direct costs in the cost of a unit of goods - 20 rubles.

It is required to determine the break-even point of the enterprise.

We calculate the threshold of profitability in value terms:

Zpost\u003d (30 + 20) x200 \u003d 10,000 rubles.
Zperem\u003d 250 x 200 \u003d 50,000 rubles.
AT\u003d 200x300 \u003d 60,000 rubles.
Prd\u003d 60000x10000 / (60000-50000) \u003d 60000 rubles.

The resulting break-even point reflects that the company will make a profit after selling goods in the amount of more than 60,000 rubles.

Calculation example in physical terms:

Prn(Profitability threshold in units of goods) = 10000/(300-250) = 200.

For an example calculation, let's take the same input data.

Thus, the company will make a profit after the sale of 200 units of goods.

Basic indicators

In order to analyze the financial condition of the company, the following criteria for assessing profitability are used:

The coefficient of economic profitability. The rate of return on tangible assets reflects the amount of profit received from all assets that the company has. The decrease in the profitability of monetary assets is characterized by a decrease in demand for the company's products.
Financial profitability ratio. The return on equity ratio reflects the degree of profitability of the company's capital. In this regard, this indicator is very interesting for a certain circle of people, namely, shareholders and the owner of the enterprise.
Activity profitability ratio. This indicator is determined by the ratio of the company's net profit to net sales revenue. The growth of this indicator indicates an increase in the effectiveness of the company, and the decrease, on the contrary, indicates its unproductive activity.
Economic profitability- this is one of the most important criteria for the attractiveness of the company, because the level of profitability reflects the upper threshold of interest.

Factors affecting profitability

External

The high efficiency of company management cannot reduce the level of influence external factors on business profitability.

To this species factors include:

territorial location of the company (remoteness from sales centers, raw material deposits, etc.);
competitiveness of goods and demand for it;
changing position in the markets;
state influence on the economy (regulation of the market at the legislative level, adjustment of the refinancing rate, changes in taxation laws, etc.);

Production

means of production;
labor resources;

The influence of these factors on the functioning of the company can be characterized from two sides:

extensive influence (determined by changing the numerical parameters production process) includes:
change in temporal and quantitative indicators of the production process;
change in the means of production (related to fixed assets: equipment, buildings, etc.) and their quantity (for example, an increase in the number of stocks);
change in the number of jobs, change in work schedules, downtime;
intensive influence is associated with an increase in the efficiency of the use of production factors;

It includes:

maintenance of equipment in the best condition, and its timely replacement with a technologically more advanced one;
application of modern materials, improvement of production technology;
increasing the level of personnel qualification, lowering the level of labor intensity of products, proper organization labor process.

To calculate the profitability threshold, apply:

- mathematical method (equation method);
- method of marginal income (gross profit);
- graphic method.

In accordance with this model, the mathematical relationship between profit, production volume and costs has the following form:

PR = pq - c - vq (1)

where PR - profit from the sale of products, monetary units; p is the selling price of a unit of production, monetary units; q - the number of sold units of production, natural units; c - total fixed costs, monetary units; v - variable costs per unit of output, monetary units.

Based on formula (1), it is easy to solve the main tasks of the break-even analysis: determining the break-even point; determination of production volumes to obtain target profit; determination of the price in the break-even analysis.

The break-even point is the sales volume of a product at which sales revenue covers total costs. At this point, revenue does not allow the organization to make a profit, but there are no losses either. Accordingly, according to expression (1), the formula for determining the break-even point (Qk) will take the following form:

Qk = c / (p - v) (2)

Break-even analysis allows you to determine the number of units of production Qpl, which must be produced and sold to obtain the planned profit PRpl.

Based on formula (1), the desired volume of production (Qpl) is calculated as:

Qpl \u003d (PRpl + c) / (p - v) (3)

Break-even analysis can also be used to make pricing decisions.

Based on formula (1)

(considering that at the breakeven point PR=0)

the minimum allowable unit price to cover total costs will be determined as follows:

Pmin \u003d (c + v q) / q (4)

Formula (4) serves as a starting point for calculating the price that needs to be set in order to obtain the planned profit (Ppl):

Ppl = (c + v q + PRpl) / q (5)

Consider the method of marginal income, which acts as an alternative to the mathematical method.

The margin method includes profit and fixed costs. This method implies that the organization sells its product in such a way that the resulting marginal income can cover fixed costs and make a profit. The point when the marginal income received is able to cover fixed costs is called the equilibrium point.

In this case, the calculation formula looks like this:

P \u003d MD - Zpost,

Since at the equilibrium point the profit is 0, we transform the formula as follows:

MDed * OR = Zpost,

where OR is the volume of sales. Here OR is the threshold of profitability. The formula for calculating the threshold of profitability in this case is as follows:

PR \u003d Zpost / MDed,

In the case of making long-term decisions, it is necessary to calculate the ratios of marginal income and sales proceeds, i.e. you need to determine marginal income as a percentage of revenue.

For this, there is the following calculation:

(MD / VR) * 100%,

Therefore, by planning the revenue from product sales, you can set the expected marginal income.

It is also necessary to know that the above formulas remain correct only when making short-term decisions.

Secondly, the break-even analysis of production gives reliable results if the following conditions and relationships are met:

- variable costs and sales revenue should have a linear dependence on the level of production;
- labor productivity cannot change within the largest base;
- specific variable costs and prices must remain constant during the entire planning period;
- the structure of production cannot change during the entire planning period;
- change in fixed and variable costs can be measured accurately;
- at the end of the analyzed period, the company does not leave stocks of finished products, i.e. the volume of sales corresponds to the volume of production.

Failure to meet any of these conditions may result in erroneous results.

The business must necessarily pass the threshold of profitability and take into account that following the period of increasing the mass of profits, there will inevitably come a period when, in order to continue increasing output, a sharp increase in fixed costs will be necessary, as a result of which there will be a decrease in profit received in the short term.

The profitability of sales is determined by the ratio of profit from the sale of products or net profit to the amount of proceeds from the sale of products without VAT and excises, expressed as a percentage:

R = (P / BP) * 100%,

where - R - profitability in terms of turnover;

P - profit;

VR - proceeds from sales.

This indicator characterizes the efficiency of entrepreneurial activity: how much profit an economic entity has from the ruble of sales, work performed, services rendered.

Profitability of commodity output and certain types products is determined by the ratio of profit from the release of products or products of a certain type to the cost of commercial output of products:

Rtv \u003d (Pv / Stv) * 100%,

Rtv - profitability of commodity output and individual types of products;

Pv - profit from the release of products or products of a certain type;

Stv - the cost of commercial output.

This indicator characterizes the absolute amount or level of profit per ruble of funds spent.

Sources of information for the analysis of indicators of profitability of products, works, services are form No. 2 of financial statements, accounting registers of an economic entity.

Changes in the level of profitability of sales occur under the influence of changes in the structure products sold and changes in the profitability of certain types of products.

The profitability of certain types of products depends on:

- on the level of sales prices;
- on the level of production cost.

The analysis is carried out in the following sequence.

Determine the level of profitability of implementation according to the plan, actually for the reporting year, for the previous year. Then the object of analysis is determined: from the actual level of profitability for the reporting year, the planned level of profitability for the reporting year should be subtracted.

The following factors influenced the change in the level of profitability of sold products, works, services:

1. Changing the structure and range of products leads to an increase in the profitability of products sold. To do this, you need to define:
- - profitability of sales for the previous year. The amount of profit is calculated based on the volume, structure, prices and cost of the previous year;
- - profitability of sales, calculated with the amount of profit, which is determined based on the volume and structure of the reporting year, but the cost and price of the previous year.
2. Change in cost. To do this, it is necessary to determine profitability based on the cost of the reporting and previous years, i.e., the volume and structure of sales of the reporting year, the cost of the reporting year, and the prices of the previous year, i.e., it is necessary to exclude the effect of price changes.
3. Change in the price level. The level of profitability is determined with profit calculated with the volume, structure, cost and prices of the reporting year.

The analysis of the profitability of the output of certain types of products is carried out on the basis of the data of planned and reporting calculations. The level of profitability of certain types of products depends on the average selling prices and unit cost of production.

The calculation of the influence of these factors on the change in the level of profitability is carried out by the method of chain substitutions for each type of product.

To assess the dynamics of the levels of profitability of commercial output of certain types of products, it is necessary to compare the actual indicators of the reporting year by types of products with the actual indicators for a number of previous years, which will make it possible to determine the trend in the profitability of products, and, consequently, the phase life cycle products.

In conclusion, it is necessary to give an overall assessment of the level of profitability of individual products.

The margin of financial strength shows how much it is possible to reduce the sale (production) of products without incurring losses. The excess of real production over the threshold of profitability is the margin of financial strength of the company:

ZFP = VR-PR,

where ZFP - margin of financial strength;

VR - proceeds from sales;

PR - the threshold of profitability.

The margin of financial strength of an enterprise is the most important indicator of the degree of financial stability. The calculation of this indicator makes it possible to assess the possibility of an additional reduction in revenue from sales of products within the break-even point.

In practice, there are three situations that will affect the amount of profit and the financial strength of the enterprise in different ways:

1. Sales volumes coincide with production volumes;
2. Sales volumes are less than production volumes;
3. Sales volumes are more than production volumes.

Both the profit and the margin of financial safety obtained with an excess of output are less than if sales volumes correspond to production volume. Therefore, an enterprise interested in improving both its financial stability and financial results should strengthen control over production volume planning. In most cases, an increase in the inventory of an enterprise indicates an excess of production. An increase in stocks in terms of finished products directly testifies to its excess, indirectly - an increase in stocks of raw materials and starting materials, since the enterprise bears the costs for them already when they are purchased.

A sharp increase in inventories may indicate an increase in production in the near future, which should also be subjected to a rigorous economic justification.

Thus, if an increase in the company's reserves is detected in the reporting period, it can be concluded that it affects the value of the financial result and the level of financial stability. Therefore, in order to reliably measure the value of the financial safety margin, it is necessary to correct the sales proceeds by the amount of the increase in the company's inventory for the reporting period.

In the last version of the ratios - with a sales volume greater than the volume of production - the profit and the financial safety margin are greater than with the standard construction.

However, the fact of selling products that have not yet been produced, that is, in fact, does not yet exist at the moment, imposes on the enterprise additional obligations that must be met in the future. There is an internal factor that reduces the actual value of the financial safety margin - this is hidden financial instability. A sign that an enterprise has hidden financial instability is a sharp change in the volume of stocks.

From the foregoing, it follows that in order to measure the financial strength of an enterprise, it is necessary to perform the following steps:

1. Calculate the stocks of financial strength;
2) Analyze the impact of the difference in sales volume and production volume through the correction of the value of the financial safety margin, taking into account the increase in the inventory of the enterprise;
3. Calculate the optimal increase in sales volume and financial safety margin limiter.

The margin of financial strength, calculated and adjusted, is an important comprehensive indicator of the financial stability of an enterprise, which must be used in predicting and ensuring the comprehensive financial stability of an enterprise.

The assessment of the financial safety margin is made according to the formula:

F \u003d ((VR - PR) / VR) * 100%,

where F is an indicator of assessing the margin of financial stability;

VR - proceeds from sales;

PR - the threshold of profitability.

Having a large margin of financial strength, the company can develop new markets, invest in both securities and in the development of production.

Forecast profit calculations are important not only for the enterprises themselves and organizations that produce and sell products, but also for shareholders, investors, suppliers, creditors, banks associated with the activity this entrepreneur participating with their own funds in the formation of its authorized capital.

Therefore planning optimal size profits in modern economic conditions is an the most important factor successful business activities of enterprises and organizations.

Entrepreneurial activity always puts before itself main task Receiving a profit. Otherwise, it doesn't make sense.

One of the main factors influencing profit is conducting an effective, correct and timely financial and economic condition of the enterprise and efficiency in the use of its resources.

Key business performance indicators

When conducting a financial and economic analysis of any enterprise, it is necessary, initially, to calculate a number of standard indicators.

These include:

profitability certain business activities under certain conditions;
payback period invested capital;
breakeven point or the threshold of profitability of the financial and economic activities of the organization;

Profitability threshold

Determining the threshold of profitability is very important for further effective work organizations. The profitability threshold indicator shows how much product to produce and sell and how many services to provide in order to pay off all costs.

That is, this is the volume of goods or services in which the profit (loss) is equal to zero.

Why is this indicator needed, what is measured by it

The profitability threshold indicator must be calculated from various points of view:

this indicator characterizes the state of the organization when it does not make a profit, but still remains "afloat";
knowing this indicator, it is possible to determine, having crossed which barrier the enterprise will bring more and more profit or fall at a loss;

The formula for calculating the threshold of profitability

The threshold of profitability of any organization can be calculated in two ways:

In terms of money

Pr \u003d (Revenue * Fixed costs) / (Revenue - variable costs)

in kind

Pr \u003d Fixed costs / (cost of a unit of goods (services) - cf. variable costs per unit of goods (services))

Determination of the threshold of profitability graphically

You can also determine the indicator of the profitability threshold and analyze the results obtained graphically. This method makes it possible to visually see in what situation the business efficiency increases, and in what situation it decreases.

To build a graph, you need the following:

It is necessary to calculate the indicator of the threshold of profitability for several sales volumes and mark all points on the charts;
Draw a straight line through the given points. or a curve that unites them;

An example of plotting a chart can be viewed at http://finzz.ru/porog-rent-formula-primer

Profitability threshold calculation in Excel

It is convenient to calculate such an indicator as Profitability threshold in Excel.

To do this, do the following:

write a different volume of production or sales in one column;
in another column, the fixed costs corresponding to each volume;
in the third column variable costs corresponding to each volume;
it is required to enter in a separate cell the cost of one unit of product or service;
the last column contains the formula for calculating the profitability threshold;

The main indicators of profitability are:

Indicator of the efficiency of production assets;
Indicator of profitability of goods and services;
Efficiency of financial investments in the main business activities of the organization;

Sensitivity and profitability analysis

When calculating the threshold of profitability, it is important to assess the impact of changing the initial parameters on the result, which is obtained in the end. Such an analysis is called sensitivity and profitability analysis.

As a result, obtained as a result, they are guided by the organization's rate of return and the NVP indicator.

Financial indicators

Equally important is the definition and others financial indicators among which are:

break-even point (profitability threshold in money equivalent, often shown graphically);
financial strength;
operating lever;

Breakeven point

The break-even point shows clearly, that is, graphically, at what volume of products sold (services provided) the company will not receive a profit, but will not fall at a loss.

In fact, the break-even point is a synonym for the profitability threshold.

Break even point formula

You can use the following calculations:

Break Even Point = (Revenue*Fixed Costs) / (Revenue - Variable Costs)

Break even chart

The break-even chart is built similarly to the graphical representation of the profitability threshold.

Margin of financial strength

From the calculation of the break-even point, the definition of two more important indicators for the analysis of the financial and economic activities of the organization follows. One of them is margin of financial strength.

It shows the percentage of real production and sales to the volume at the point where profits (losses) are equal to zero.

The higher the percentage obtained from this ratio, the stronger the enterprise is considered.

Operating lever

Another indicator that follows from the definition of the break-even point is called operating leverage. It is characterized by determining the reaction of changes in profits depending on changes in income.

Formulas

Operating leverage (price) = revenue from all sales for a certain period / profit received from all sales for the same period

Operating leverage (natural) = (revenue - variable costs) / profit

net present value method

NPV or net present value method means valuing business activities in terms of discounted cash flow.

To carry out such an analysis, it is necessary to find amount of incoming and outgoing cash flows associated with a particular investment project.

Formula for calculating NPV

NPV = ∑ (NCFi)/(1+r) – Inv, where

NCFi is the flow of funds for the i-th period

r - discount rate

Inv - financial initial investment

Discount calculation

Discounting means finding the value of financial flows that the company should receive in the future.

To do this, you need to know the following estimated values:

revenue;
investments;
expenses;
discount rate;
the residual value of the property of the organization;

Discount rate

The discount rate is determined by the rate of return on financial investment required by investors.

Payback period of the project

Other important indicator for investors in determining the effectiveness of an investment project is its payback period. This indicator shows how much time must be spent in order for income to cover all expenses together with investments.

Discounted payback period

The most applicable to determine the payback of the project is the discounted payback. This indicator determines exactly the time for which it is possible to return the money invested in the "case" at the expense of the net financial flow, taking into account the discount rate.

Internal rate of return

When the net present value is zero, the interest rate is called the internal rate of return. This is another indicator characterizing the profitability of investment projects of the organization.

Coverage ratio

Having determined the ratio of current assets to short-term liabilities, it is possible to calculate the indicator that determines the coverage ratio.

It shows the organization's ability to pay current financial obligations to other business entities from working capital.

Summary

To conduct an effective financial and economic analysis, it is necessary to calculate the following indicators:

enterprise profitability threshold at different volumes of production;
calculate the breakeven point;
company resilience will show the indicator of financial strength and operating leverage;
to determine the effectiveness any investment projects it is necessary to initially calculate the discount rate, internal rate of return, and discounted payback period;
for a more visual analysis the profitability threshold should be calculated in Excel or displayed graphically;