home Calculators Profitability threshold: what is it, formula, excel calculation example. Financial profitability threshold: what is the use of this indicator Profitability threshold fixed costs

Profitability threshold: what is it, formula, excel calculation example. Financial profitability threshold: what is the use of this indicator Profitability threshold fixed costs

One of the most important stages in planning the organization's activities is to consider options for possible changes in the market situation and the possibilities of the organization's activities in these conditions.

One of the most accessible methods for managing business activities and financial performance is operational analysis, carried out according to the scheme: costs - sales volume - profit. This method allows you to identify the dependence financial result from changes in costs, prices, output and product sales.

With operational analysis, you can:

1. evaluate profitability economic activity;

2. predict the profitability of the organization;

3. evaluate entrepreneurial risk;

4. choose the best way out of crisis;

5. evaluate the profitability of investments;

6. develop the most beneficial assortment policy for the organization in the field of production and sales.

Key elements operational analysis following indicators:

Critical volume of production and sales of products;

Threshold of profitability;

margin of financial strength.

Business break-even analysis is one of the main tools for solving a large class of management tasks. Through such an analysis, it is possible to determine the break-even point and financial safety margin (safety zone), plan the target production volume, set product prices, select the most efficient production technologies, and adopt optimal production plans.

Break-even point (profitability threshold)- this is the minimum allowable sales volume, which covers all the costs of manufacturing products, while not bringing any profit or loss.

If the company produces only one type of product, the break-even point is calculated by the formula:

TB \u003d PZ / (C - Per.Z.ud.),

TB - breakeven point, units.

ПЗ - fixed costs, rub.;

P is the price of a unit of production, rub./unit;

Ln.Z.ud. - variable costs per unit of production, rub./unit;

(C -. Per.Z.ud) - marginal income per unit of production, rub. / unit.

In value terms, the profitability threshold is determined as follows:

TB \u003d PZ / Kmd,

TB is the critical amount of revenue, rub.

Кмд - coefficient of marginal income;

Kmd = MD / N

N - sales revenue, rub.

MD \u003d N - Per.Z.

If there is more than one type of product, the break-even point can be determined for the business as a whole or for individual types of products.

The difference between the actual or planned sales proceeds (Nactual - Nplan) and the critical amount of proceeds (TB) characterizes margin of financial safety (FFP):

ZFP = Nfact - TB

or ZFP = Nplan - TB

An entity with no risk of loss can reduce the sales proceeds by the amount of the FFP. The margin of financial strength can be determined not only in absolute terms, but also relative:

KZFP \u003d ZFP / Nfact * 100%

or KZFP = ZFP / Nplan * 100%

Financial safety factor reflects the percentage of allowable reduction in sales revenue without the risk of loss.

The safety indicator is often used to assess operational risk: the higher the indicator, the safer the situation, since the risk of lowering the equilibrium point is less.

test questions on this topic

1. What is the role economic analysis in organizational planning?

2. What is the meaning of budget planning in an organization?

3. What are the main methods used in developing a business plan?

4. How is the sales budget developed?

5. What is the production budget?

6. How is the estimate of direct material costs?

7. How is the cost estimate for wages and general production costs compiled?

8. How is the estimated cost of production calculated?

9. What costs are fixed and variable?

10. What method can be used to divide the total costs into fixed and variable?

11. How is margin income calculated?

12. How is the profitability threshold calculated?

Tests

1. The total need for working capital is determined:

a) structure equity

b) the profitability of the production of this type of product

c) the scale of production and the time of turnover of current assets

2. With a decrease in variable costs, the profitability threshold of the organization:

a) remains the same

b) rises

c) goes down

3. How will the increase in fixed costs affect the financial strength of the organization:

a) will increase

b) decrease

c) stay the same

4. How will the increase in fixed costs affect the critical sales volume?

a) the critical volume will decrease

b) the critical volume will not change

c) the critical volume will increase

5. Part operating budget organization is:

a) the budget for direct labor costs;

b) flow budget Money;

c) investment budget.

6. The forecast cash flow statement is developed on the basis of:

A) long-term sales forecast

B) general business overhead budget

B) capital investment budget

d) pro forma income statement

7. Financial indicators business plan should be balanced:

a) with indicators of capital intensity

b) with indicators of the volume of production and sales of products

c) with profitability indicators

8. The threshold of product profitability (the point of the critical volume of production) is determined by the ratio:

a) fixed costs to revenue from product sales

b) fixed costs to variables

c) fixed costs to marginal income per unit of output

9. The company's operating budget includes:

a) the budget for direct labor costs

b) cash flow budget

c) investment budget

10. Top-down budgeting process:

a) carried out by employees directly involved in the production process

b) requires general budget directives

c) is characterized by a positive attitude of managers to more low levels management

d) better reflects organizational goals

11. The zone of safe or stable operation of the organization is characterized by:

a) the difference between marginal income and fixed costs

b) the difference between marginal income and profit from product sales

c) the difference between the actual and critical volume of sales

12. The cost elements for the production and sale of products (works, services) are:

a) raw materials, materials, fuel, energy, wages, depreciation

b) depreciation, material costs, salaries, general expenses.

13. One of the methods for compiling financial plan is an:

a) percentage of sales method

b) chain substitution method

14. The organization's budget is:

a) forecast balance

b) a quantitative plan in monetary terms, showing the planned amount of income and expenses

Practical tasks

1. Determine the threshold for profitability of sales new products(ETC). Estimated unit price (C) - 500 rubles. Variable costs per unit of production (PeryuZ.ed.) - 60%. The annual amount of fixed costs (FC) is 200 thousand rubles.

2. Determine the amount of financial safety margin, if:

sales revenue (N) is 600 tr., variable costs (Per.Z) - 300 tr., fixed costs (PC) - 150 tr.

3. . Specific gravity marginal income in sales revenue is 30%; sales volume at the break-even point - 600 thousand rubles. What is the amount of fixed costs?

4. Determine the critical sales volume (TB)if:

Fixed costs (PC) - 200t. rubles

Variable costs per unit of production (Per.Z.ed) - 800 rubles

The price of a unit of production is 1800 rubles.

5. What is the value of contribution margin, if:

Sales proceeds - 120,000 rubles.

Fixed costs - 30,000 rubles.

Variable costs - 70,000 rubles.

6. Determine the point of critical sales volume (TB), if:

Sales proceeds (N) - 6000 thousand rubles.

Fixed costs (FC) - 1000 thousand rubles.

Variable costs (Per.Z) - 2000 thousand rubles.

7. Determine the amount of profit (P), if:

Marginal income (MD) - 3000t.r.

Fixed costs (FC) - 1500t.r.

Sales proceeds (N) -8200t.r.

8. As of the reporting date, the organization has the following indicators:

At the beginning of the period At the end of the period

Stocks of materials: 2,750 3,250

Costs in work in progress 4,800 4,000

Finished products 2,500 1,250

The following expenses were incurred during the reporting year:

For materials - 20,000 rubles.

For wages - 11,000 rubles.

General production expenses - 16,500 rubles.

Profitability threshold- this is such sales revenue, in which the company has no loss, but still no profit.

The profitability threshold is an indicator that characterizes the volume of sales of products, at which the company's revenue from the sale of products (works, services) is equal to costs. This is the volume of sales at which the business entity has neither profit nor loss.

Profitability threshold analysis is performed in the FinEcAnalysis program in the block Calculation of the break-even point using operating leverage.

Profitability Threshold Formula

The profitability threshold is determined by the formula:

Synonyms

break-even point, solvency point, critical sales volume

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More found about the threshold of profitability

When conducting an analysis of financial activities and economic condition of any firm, one of the indicators that allows you to do this is the threshold of profitability.

The concept of the threshold of profitability

The indicator at which the proceeds received from sales with the smallest volume of sales of the enterprise covers all production costs, as well as all expenses for the sale of products, is called the profitability threshold. The profit margin will then be zero.

In other words, this variable determines how much of a product must be sold at a certain price in order to ensure profitability at which the firm will not incur losses.

Often, this indicator is also called the critical point, critical production volume or break-even point.

It should be clarified that if the revenue exceeds the profitability threshold, an increase in profits will begin.

Thus, in the case of a set price for a product, it must be sold in quantities that exceed the break-even point.

The threshold rate of return must be considered from different angles:

Its value is intended to characterize the state of the enterprise, when it is still able to function without making a profit.
The management of the organization with respect to this indicator will be able to plan the volume of production to increase profitability.

Influencing factors

Factors influencing the value of the threshold rate of return:

revenue received from the sale of a unit of a good or service;
fixed costs;
variable costs;

If any of these indicators fluctuate, the threshold of profitability will decrease or increase.

For a more complete understanding of the significance of these factors, it is necessary to consider the concept of variable and fixed costs in more detail.

Fixed costs (conditionally fixed) are the costs of the company that do not depend on the volume of production for a specific period and remain relatively unchanged for a separate reporting period.

rent for premises;
deductions for depreciation;
utilities (water supply, lighting, heating);
funds for the issuance of wages to employees of the management apparatus of the organization;
insurance payments;
payment of interest on loans;
communication costs and so on.

The peculiarity of these costs is that their organization is obliged to pay in any case, regardless of whether it is in profit or loss.

Reducing these costs is very difficult, unlike variables.

Variable costs are the costs of an enterprise that vary in direct proportion to the volume of output or services produced.

In the balance sheet of each enterprise there is such an item as "Raw materials and materials". It reflects the cost of all the funds needed by the organization for the production of products.

Funds intended for remuneration of employees who are directly involved in the production of products.
Fare.
Funds for the purchase of raw materials and supplies.
Payment for fuel and energy required for production.
Taxes calculated from the financial result (profit tax) and others.

Formulas for calculating the threshold rate of return

The first formula: Vyrtb \u003d Zpost + Zper, where:

Vyrtb - revenue at the break-even point;
Zpost - fixed costs;
Zper - variable costs;

Fixed costs are also called gross margin, which is equal to the difference between revenue and variable costs.
The threshold of profitability of each organization can be calculated in two ways:

AT money equivalent: PRden=Vyr*Zpost/(Vyr-Zpost), where:

PRden - the threshold of profitability in terms of money;
Vyr - total revenue;
Zpost - fixed costs;
Zper - variable costs;

In kind: PRnat=Zpost/(C-ZSper), where:

PRnat - the threshold rate of profitability in physical terms;
Zpost - fixed costs;
ZSper - average variable costs (per unit of product or service);
P - the cost of a unit of production or service;

In order to build this graph, you need to calculate the profitability threshold indicator for several production volumes and mark these points on the plane, and then draw a curve or straight line connecting them through them.

Calculation of threshold rate of return in Excel

In this program, it is incredibly convenient to carry out calculation operations.

For this you need:

In the first column, enter data on several sales or production volumes.
In the second column, note the fixed costs corresponding to these volumes.
The same must be done in the third column, only for variable costs.
In a separate cell, you must specify the cost per unit of product or service.
In the last column, the formula for calculating the threshold of profitability is written and stretched across the entire column.

Based on this table in Excel, you can make a graph.

An example of calculating the profitability threshold

Condition: the company sells goods in the amount of 110 units at a price of 510 rubles. The amount of variable costs is 365 rubles, fixed costs per unit of production - 115 rubles. It is necessary to calculate the threshold rate of return.

Calculation in monetary terms:

Zpost \u003d 115 * 110 \u003d 12650 rubles
Zper=365*110=40150 rubles
Vyr \u003d 510 * 110 \u003d 56100 rubles
PRden \u003d (56100 * 12650) / (56100-40150) \u003d 44493.1 rubles

Thus, the organization will remain in the black if its products or services are sold for a total amount that will be higher than 44,493.1 rubles.

In other words, in the case of sales of products for a given amount, the company will be at the break-even point.

Calculation in kind:

PRnat=12650/(510-365)=87 pieces

Consequently, the company will be able to make a profit when selling products over 87 pieces.

Enterprise profitability indicators

In order to understand how effective the activity of the enterprise is, along with the value of the threshold of profitability, it is necessary to calculate the main profitability ratios of the organization.

Profitability indicators characterize the ability of an enterprise to generate a return on invested capital.

The following variables are distinguished:

Profitability ratio of all assets. He talks about how many rubles of net profit the company extracts for the ruble of capital invested in the business. Kra \u003d PE / KAPsr, where: Kra - the desired coefficient; PE - net profit; KAPsr - the amount of assets at the end and beginning of the year, divided in half.

Return on equity ratio. It characterizes the investment attractiveness of the business and shows how many rubles per ruble of funds invested by shareholders. Krsk \u003d PE / SKsr, where: Krsk - the desired coefficient; PE - net profit; SKav - the amount of equity at the end and beginning of the year, divided in half.

Return on current assets. It indicates the efficiency of the use of current assets and operating activities. Krta \u003d PE / TAav, where: Krta - the desired coefficient; PE - net profit; TAav - the sum of current assets at the end and beginning of the year, divided in half.

Return on long-term assets. It shows how effectively non-current assets are used in general and mainly fixed assets. In addition, the indicator characterizes the investment activity of the enterprise. Krda \u003d PE / DAsr, where: Krda - the desired coefficient; PE - net profit; DAav - the amount of non-current assets at the end and beginning of the year, divided in half.

Return on sales ratio. It points to efficiency marketing activities and characterizes the demand for the company's products. Krp \u003d PE / Vyr, where:Крп - the desired coefficient; PE - net profit; Vyr - revenue.

The profitability ratio of the production cost. It shows how efficiently the company is organized and in demand, that is, how many rubles of net profit received are accounted for by one ruble of costs invested in production. Krps \u003d PE / Ss, where: Krps - the desired coefficient; PE - net profit; SS - cost.

Thus, it is necessary to conclude that it is not at all difficult to calculate the profitability threshold indicator and analyze with its help certain economic aspects of the enterprise's activities.

However, his role is extremely important. And in the case of an analysis of the economic state with the help of the main profitability ratios, it is possible to fully assess the feasibility of producing goods and services.

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 the financial condition of the enterprise;

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 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 managerial personnel with deductions from salaries to extra-budgetary 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 / fall 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 40 kopecks of profit in this case.

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.

The main indicator of the effectiveness of any kind entrepreneurial activity is the profit that can be predicted after calculating the profitability threshold.

The profit margin is relative indicator the amount of proceeds from the sale of products, which covers all existing expenses without making a profit and without incurring losses. I.e financial activities equals zero, with the complex use of labor, money, and material resources. In most cases, it is expressed using interest, as well as per unit of funds invested in profit.

How to calculate

In order to plan further profit and financial position, it is necessary to calculate the profitability threshold, which all companies strive to exceed. There are several calculation formulas that are expressed in monetary and natural terms, namely:

Profitability formula in monetary terms: PR d \u003d V * Z post / (V - Z lane). Where, PR d- threshold of profitability, V- revenue, Z post- fixed costs, determined by the volume of products produced, namely, transportation costs, the purchase of raw materials and materials, Z lane– variable costs, including rent, depreciation, communal payments and wages.
Profitability formula in physical terms: PR n \u003d Z post / (C - ZS lane). Where, PR n- the threshold of profitability in pieces, C- product price, ZS lane are average variable costs.

An example of calculating the profitability threshold should be given on the basis of a certain enterprise "X", which sells 112 units. finished products, the price for one piece is 500 rubles. Variable costs for the production of one unit are 360 rubles. Fixed costs per unit are 80 rubles, and fixed indirect costs are 36 rubles.

In order to proceed to the formula, it is necessary to determine the total number of variable and fixed costs.

They are calculated as follows:

Z post \u003d (80 + 36) * 112 \u003d 12992 rubles.

V \u003d 112 * 500 \u003d 56,000 rubles.

PR d \u003d 56000 * 12992 / (56000 - 40320),

PR d = 727552000/15680,

PR d \u003d 46400 rubles.

The resulting amount of the profitability threshold indicates that the company, after the sale of manufactured products, will begin to make a profit if it exceeds 46,400 rubles.

PR n \u003d 12992 / (500 - 360),
PR n = 12992/140,

PR n \u003d 92.8 pieces, after rounding it is 93 pieces.

The data obtained indicate that the company will begin to make a profit when the sales volume exceeds 93 pieces.

Threshold of profitability and margin of financial safety

Determining the profitability threshold allows you to plan future investments, for example, to minimize costs in the absence of demand, increase production, operate sustainably and create a certain financial reserve. And also constantly monitor the indicators of its position in the market and develop rapidly.

The margin of financial strength makes it possible to reduce the volume of production, provided that losses are not observed.

It can be determined by subtracting the profitability threshold indicator from the amount of revenue. The higher this indicator is, the more financially stable the company will be. In the event of a decrease in revenue below the profitability threshold, there will be a shortage of liquid funds and the company's financial position will deteriorate significantly.

Based on the indicator of the profitability threshold of the enterprise "X", it is possible to determine the margin of financial strength:

ZFP \u003d V-PR d,

ZPF \u003d 56000 - 46400,

ZPF \u003d 9600 rubles.

It follows from this that the enterprise, without serious losses, can withstand a decrease in revenue by 9600 rubles.

These two indicators are important not only for enterprises, but also for creditors, because on their basis the company can receive the necessary loan.

Profitability threshold

Profitability, in essence, is the profitability or profitability that an enterprise receives as a result of its work.

The main indicators of profitability include:

Profitability of the enterprise or balance sheet, is an indicator that shows the performance of an enterprise or industry as a whole.
Product profitability, is determined by the ratio of profit from sales to the cost of production or to full costs, and characterizes the result of current costs. It is calculated for all types of products, which allows you to evaluate the activity of production. To date, economists around the world determine the financial condition of enterprises using the profitability ratio, which shows the effectiveness of probable or planned investments.
Profitability of sales represents an indicator or coefficient of the share of profit in each earned monetary unit, and is also a certain indicator that affects the pricing policy. It is determined on the basis of the ratio of profit to revenue from the sale of all products.

Profitability Threshold Analysis

The threshold of profitability fully characterizes the work of the enterprise, rather than profit. It shows the overall ratio of resources used and those that are available. Its calculation is used both for evaluating the company's performance, and for future investments and pricing policy.

It should be noted that the profitability indicators of the enterprise, products and sales are calculated on the basis of net profit, proceeds from product sales, as well as balance sheet profit.

How to lower the threshold of profitability

The only way to achieve a lower profitability threshold is to increase the gross margin, that is, marginal income, which is equal to fixed costs during critical sales volume.

In this case, it is necessary:

Increase sales volume.
Raise the price of products, but within effective demand.
Reduce variable costs, such as wages, rent, or utility bills.
Reduce fixed costs, which increase the threshold for profitability, and reflect the degree of risk of entrepreneurial activity.

In order for the company to work and develop, it is necessary to correctly combine low fixed costs with a high gross margin. In this case, it is possible to calculate the profitability threshold by dividing the fixed costs by the gross margin ratio.