home Interpreter Profitability is calculated as a ratio of profits. What is profitability in simple terms

Profitability is calculated as a ratio of profits. What is profitability in simple terms

Profitability is an indicator that indicates the degree of work efficiency and evaluates the effectiveness of investment and use of production resources.

Many entrepreneurs evaluate the results of their activities in terms of profit, but this is not entirely correct. The results of the work are evaluated by profitability, using the indicators of which you can carry out procedures to increase efficiency, plan your activities and analyze the situation in production.

Why is it necessary to calculate profitability?

This indicator must be calculated in the following cases:

in order to obtain a loan and assess their financial capabilities;
to assess the development of the enterprise;
to evaluate the effectiveness of sales;
for comparison with competitors.

Before granting a loan to an organization, the bank always evaluates profitability indicators.

What is enterprise profitability?

This parameter characterizes the profitability of the business. It reflects how much profit the company will have per unit of invested funds. Many factors influence the results of calculations:

There are different rates of return. The priority is the overall indicator of profitability, as well as the profitability of sales, assets, investments, production.

Overall profitability

This is the relationship between balance sheet profit and average indicators of production assets and current assets.

Balance sheet (or accounting) profit is profit for a specific time period, from which the cost of goods and other expenses (sales and management) are deducted, but taxes are not deducted. Also, operating profit and non-operating income are added to the resulting value. products sold.

Production assets are instruments and means of labor. They are primary and secondary. Fixed assets are means of labor used in the production process and retaining their original form. Their value is added in installments to finished goods.

Working capital - funds that change during production (raw materials, fuel, expendable materials etc.). Their cost is always invested in the cost of products.

Current assets are cash savings that an organization owns and manages. These are also resources that may become monetary assets in the future (stocks of goods, shares, securities, etc.).

Enterprise profitability formula (P):

P \u003d (balance sheet profit for a specific time / (average value of fixed production assets + average value of current assets)) * 100%

If this indicator is high, then the company is moving in the right direction and the activity is successful and prosperous. There can be many reasons for the decrease in results, which should be analyzed to eliminate the negative impact.

Return on sales is the profit earned per unit goods sold. It characterizes the performance of the work and shows the amount of funds remaining with the company after deducting the cost, all payments and taxes. Return on sales (RP) also gives an estimate of the share of cost in production. This indicator reflects pricing policy and the ability to control costs and expenses. The value of RP may decrease if investments are made in new products or another industry, but this does not mean a decrease in efficiency.

RP formula:

RP = (net profit / total revenue) * 100%

Return on assets (RA) is a measure of the profitability of a business and its efficiency. It shows whether the assets can make a profit or how much profit can be received for each invested ruble, and reflects the effectiveness of the use of all funds.

RA formula:

RA = (net income / average assets) * 100%

Profitability of production

This is a factor that reflects the relationship between profit and costs received in the production process. It indicates how much revenue can be received for each ruble used for the manufacture and sale of goods.

Production profitability formula (RPR):

Rpr \u003d (net profit / costs for the manufacture of goods (or cost of production)) * 100%

The indicator can be calculated for all types of products in general or for individual types of goods.

ROI

It is also called return on investment. Return on investment (ROI) shows the level of efficiency and correctness of the use of investments.

Formula (RI):

RI \u003d (net profit / number of investments for this period) * 100%

This indicator can show how profitable your project will be, and allows you to give an adequate assessment of the business.

You can get acquainted with the methodology for calculating marginal profit and its definition. Another one important topic- the topic of taxes and the amount of their deductions in a particular case. More details about this.

Evaluation of indicators

After receiving the calculation results, it is important to evaluate them correctly. If this is done correctly, then you can understand the reason for the decline in profits and lack of income, as well as draw up a further plan for the development of the enterprise. For example:

if the profitability of sales is low, then the cost of production is too high;
if the profitability of the staff is high, then the company has a large number of employees or the employees have too high a salary;
low profitability of sales can also indicate an overestimated cost of production and that costs are growing, but profits are not;
the profitability of individual goods shows the profitability of each of them, etc.

Analysis of the effectiveness of the organization's activities is impossible without taking into account profitability indicators. An indicator that characterizes the profitability of an activity or, in other words, economic efficiency - this is the concept of profitability.

This parameter demonstrates how efficiently the company uses the available economic, labor, financial and natural resources.

For not commercial structures profitability is the main indicator of work efficiency, and in commercial divisions, quantitative characteristics calculated with greater accuracy are important.

Therefore, there are many types of profitability: profitability of production, profitability of products, profitability of assets, etc.

But, in general terms, these indicators can be compared with efficiency indicators, the ratio between the costs incurred and the resulting profit (the ratio of costs to income). A business that brings profit according to the results of reporting periods is profitable.

Profitability indicators are necessary for the implementation financial analysis activities, identifying weaknesses, planning and implementation of measures to increase production efficiency.

The types of profitability are divided into those based on the cost approach, the resource approach or the approach that characterizes the profitability of sales.

Different types of calculation of profitability pursue their own goals and use many different accounting indicators (net profit, production cost, commercial or administrative expenses, profit from sales, etc.).

Profitability of the main activity.

Refers to cost indicators, characterizes the effectiveness of not only the main activities of the company, but also work related to the sale of products. Allows you to evaluate the amount of profit received per 1 ruble spent.

This takes into account the costs associated with the direct production and sale of core products.

It is calculated as the ratio between the profit from sales and the sum of the cost of production, which includes:

the cost of sold goods, works, products or services;
cost of business expenses;
cost of management expenses.

It characterizes the organization's ability to independently cover costs with profit. The calculation of the profitability of an enterprise is used to assess the effectiveness of its work and is calculated by the formula:

Genus = Prp / Z,
Where Z - costs, and Prp - profit received from the sale.

The calculation does not take into account the time elapsed between production and sale.

Return on current assets.

The profitability of current (in other words - mobile, current) assets shows the profit received by the organization from each ruble invested in current assets and reflects the efficiency of using these assets.

It is defined as the ratio between net profit (i.e., remaining after taxation) and current assets. This indicator is intended to reflect the organization's ability to generate a sufficient amount of profit in relation to the current assets used.

How given value higher, the working capital are used more efficiently.

Calculated according to the formula:

Ptot = Chp / Oa, where

Rtot - overall profitability, net profit - Np, and Oa - the cost of current assets.

Internal rate of return.

The criterion used to calculate the effectiveness of an investment. This indicator allows you to evaluate the feasibility of investing in investment projects and shows a certain discount rate at which the net worth of funds expected in the future will be equal to zero.

This is understood as the minimum rate of return, when the investment project under study assumes that the desired minimum rate of return or the company's cost of capital will exceed a smaller indicator of internal profitability.

This calculation method is not very simple and is associated with careful calculations. In this case, inaccuracies made during the calculation can lead to the final incorrect results.

Moreover, when considering investment projects other factors are taken into account, for example, gross margin. But it is on the basis of the calculation of the internal rate of return that the enterprise makes decisions of an investment nature.

Profitability of fixed assets.

The presence of profit absolute indicator, does not always allow you to get a complete picture of the efficiency of the enterprise. For more accurate conclusions, relative indicators are analyzed, showing the effectiveness of specific resources.

The process of work of some enterprises depends on certain fixed assets, therefore, for a general increase in the efficiency of activities, it is necessary to calculate the profitability of fixed assets.

The calculation is carried out according to the formula:

Ros \u003d Chp / Os, where

Ros - profitability of fixed assets, Np - net profit, Os - cost of fixed assets.

This indicator allows you to get an idea of what part of the net profit falls on the unit cost of fixed assets of the organization.

Calculation of profitability of sales.

An indicator that reflects net profit in total revenue demonstrates the financial performance of the activity. financial result different indicators of profit can appear in the calculations, this leads to the existence of several variations of the indicator. Most often these are: profitability of sales in terms of gross profit, net profit and operating profitability.

What is the formula for return on sales. Find the answer in this article.

Formulas for calculating the profitability of sales.

According to gross profit: Rpvp = Bp / B, where Bp is gross profit, and B is revenue.

Gross profit is the difference between sales revenue and cost of sales.

For net profit: Rnp = Np / V, where Np is net profit, and B is revenue.
Operating margin: Op = EBIT/B, where EBIT is profit before taxes and deductions, and B is revenue.

The optimal value of the profitability of sales depends on the industry and other characteristics of the enterprise.

So in organizations using a long production cycle, such profitability will be higher than those companies that work with a high turnover, although their efficiency may be the same.

Sales efficiency can also show the profitability of products sold, although it takes into account other factors.

Threshold of profitability.

It also has other names: critical volume of production or sales, critical point, break-even point. Denotes this level business activity organization in which total costs and total revenues are equal to each other. Allows you to determine the margin financial strength organizations.

Calculated by the following formula:

Pr \u003d Zp / Kvm, where

Pr - profitability threshold, Zp - fixed costs, and Kvm is the gross margin ratio.

In turn, the gross margin ratio is calculated by another formula:

Vm \u003d V - Zpr, where Vm - gross margin, V - revenue, and Zpr - variable costs,
Kvm \u003d Vm / V.

The company incurs losses when the sales volume is below the profitability threshold and makes a profit if this indicator is above the threshold. It is worth noting that with an increase in sales, fixed costs per unit of production decrease, while variables remain the same. The profitability threshold can also be calculated for certain types services or products.

Cost-effectiveness.

It characterizes the payback of the funds spent on production, shows the profit received from each ruble invested in production and sale. Used to evaluate the effectiveness of spending.

It is calculated as the ratio between the amount of profit and the amount of expenses that brought this profit. Such expenses are considered decapitalized, written off from the balance sheet asset, presented in the report.

The cost-benefit ratio is calculated as follows:

Rz = P/Dr, where P is profit and Dr is decapitalized expenses.

It should be noted that the calculation of cost-effectiveness indicators demonstrates only the degree of return on costs spent on specific areas, but does not reflect the return on invested resources. This task is performed by indicators of profitability of assets.

Factor analysis of profitability.

It is one of the parts of financial analysis and, in turn, is divided into several models, of which additive, multiplicative and multiple are most often used.

The essence of building such models is the creation of a mathematical relationship between all the studied factors.

Additive ones are used in cases where the indicator will be obtained as a difference or sum of the resulting factors, multiplicative - as their product, and multiple - when the factors are divided into each other to obtain the result.

Combinations of these models give combined or mixed models. For a full-fledged factorial analysis of profitability, multifactorial models are created that use various profitability indicators.

Market entities conducting economic activities should regularly analyze the final results of the work carried out, as well as the effectiveness of the efforts spent. Each such analysis should end with a summary that will indicate future prospects business development. If you need to do economic analysis activity, profitability will become practically the main factor.

What is profitability?

The term "profitability" means a certain indicator that determines economic efficiency, characterizing the profitability of entrepreneurial "labor". With the help of the parameter, the manager can understand whether the enterprise is effectively using the resources at its disposal. Such resources may include financial, natural, as well as labor and economic. In simple words Profitability is the ability of a company to generate income from its activities in excess of expenses.

If we talk about the field of activity of non-commercial structures, it should be noted that the profitability indicator in this case can be considered the effectiveness of the work done by it. When we are talking about organizations of a commercial plan, accurate indicators of a quantitative plan are important. Modern economic theory compares profitability with such an indicator as efficiency, which is the ratio of the sum of the total costs and the final profit received from the company's activities.

In other words profitability ratio is a simple ratio of expenses and income received. If, summing up last year, the accounting department announced that the company made a profit, the business is considered profitable and payable.

Types of profitability

Today, profitability can be represented in different types, because to determine the effectiveness of a business, calculations of different content may be required. When calculating for various business directions, you need to take into account that the coefficients and formulas for their calculation will be different. Profitability happens:

The overall profitability of non-current and current assets. This feature indicates financial loans, which were used by the organization in order to increase profits in the amount of 1 ruble. The coefficient is calculated based on profit ratio, which appeared on the balance sheet of the enterprise before payment of the full amount of established taxes, and the average price of all assets at the disposal of the company in a specific period of time. The overall profitability can be calculated for a quarter, half a year, a year or a month and represents the ability of the company's assets to increase profits. If it is necessary to calculate the profitability indicator of asset formation, it is necessary to divide the amount of profit before taxes by the calculated average value of assets that were raised in that particular time period;
Product profitability - economic indicator, acting as the ratio between the profit received from the sale of goods and the costs associated with their production. The resulting coefficient will assess the profitability of the production of each specific product;
Profitability of production implies a specific economic coefficient that allows you to adequately assess the feasibility of doing any business. To calculate it, it is necessary to calculate the ratio of costs and net final profit. If the balance sheet profit and the balance of fixed costs are positive, the production work can be considered profitable. To increase the profitability of production, it is necessary to reduce the total production cost, leaving its quality the same or improving it.

Types of profitability and calculation formulas

To fully reveal the concept of profitability in each of its types, visual formulas should be presented by which examples of calculations can be given. Profit Ratio:

If we talk about calculating the effectiveness of running an enterprise economic activity, it should be noted that the calculations should be carried out taking into account one-time costs and current ones. Modern economic theory distinguishes between production profitability and product profitability:

ROM- the indicator of product profitability is considered a coefficient that shows the level of efficiency of all material costs. Here we are talking about the ratio of the profit that was received in the course of the sale of products, and the cost of the goods sold. The indicator can be calculated for each specific unit goods and for all products in general. In this case, the formula will be:

RP \u003d (P / SP) * 100%, where RP is the profitability indicator, SP is the cost of the goods sold, P is profit;

The profitability of production is the degree of efficiency in the use of property belonging to the enterprise, which includes revolving funds and fixed assets. Formula:

RP \u003d (PB / (F os.f. + F ob.sr)) * 100%, where RP is the profitability ratio of production, expressed as a percentage, PB is the balance sheet profit, F os.f is the price of fixed assets, F vol. f - the amount of working capital.

Additional types of profitability indicator

Profitability in addition can be reproduced by such indicators:

ROS- profitability of sales is the ratio of profits received from the sale of the range sold and the company's revenue. To put it simply, the ratio is the ratio of net profit remaining after deducting tax deductions to sales volumes. The indicator displays the percentage of profit included in each ruble earned by the organization. Using this coefficient, the cost of each product is formed. The indicator also gives an adequate assessment of the company's costs;
ROL- indicator of profitability work force, which is shown as the ratio between net income and number of employees employed by the company for a certain period of time. In other words, the managers of the organization must control the threshold of the number of employees at which it will be possible to obtain maximum profit;
The profitability of contracting services is calculated as follows:

R sub. services = (Z unpred. - Z predst.) / Z predst.

When working with contractors, it is also necessary to take into account that in case of failure to comply with the plan, the contractor will incur significant losses, for example, fines and other sanctions.

Ways to increase profitability

To determine trends in fluctuations in sales profitability, it is necessary to establish reporting period and basic. The base period can be based on indicators that were calculated for the last quarter or year, when the profit generated by the enterprise was maximum. Further, the coefficient of the reporting period will be compared with the coefficient for the base period.

The indicator of profitability of sales can be artificially increased. To do this, you must either increase the price of the goods sold, or reduce the cost. To make the right decision, the company must take into account the following factors: fluctuations in consumer demand, market dynamics, performance assessment competitive organizations etc.

In general, to increase profitability, it is necessary to increase profitability. You can do this in the following ways:

Increasing production capacity. Application of achievements technical progress requires additional material investments, but allows you to save in the future production process. Production equipment, already in the enterprise, can be modernized, thus saving resources and increasing the efficiency of labor.
Increasing product quality can significantly influence the increase in demand;
Having developed a competent marketing policy, which will be based on the promotion of goods through the use of market conditions and customer preferences. On the large enterprises there are entire departments dedicated to marketing. On the small businesses marketing functions are performed by managers.
By reducing the cost of the product range sold. This can be done if you find suppliers who offer the necessary raw materials, products or services at prices lower than those of competitors. The main thing here is to monitor the quality, which should not suffer.

Introduction 1. General profitability 2. Return on current assets 3. Return on production assets 4. Return on assets of the enterprise 5. Return on financial investments 6. Profitability of production 7. Payback period equity

Introduction

Profitability indicators are designed to assess the overall effectiveness of investing in an enterprise. They are widely used to assess the financial and economic activities of enterprises in all industries. These are one of the most important indicators in assessing the activities of the enterprise, which reflect the degree of profitability of the enterprise.

Profitability indicators are formed as follows:

, where

R&I -profitability of certain economic means and their sourcesP -profit (net or balance sheet)

Overall profitability

This indicator is the most common in determining the profitability of an enterprise and is calculated as the ratio of profit before tax to the proceeds from the sale of goods, works and services produced by the enterprise.

The indicator shows what part of the proceeds from sales is profit before tax, is analyzed in dynamics and compared with the industry average values of this indicator.

, where

Pdn -profit before tax,Vreal -revenues from sales

Return on current assets

It is defined as the ratio of net profit (profit after tax) to the company's current assets. This indicator reflects the ability of the enterprise to ensure a sufficient amount of profit in relation to the working capital used by the company. The higher the value of this ratio, the more efficiently working capital is used.

, where

PE -net profit,OA -average annual value of current assets

Profitability of production assets

It is defined as the ratio of balance sheet profit to the average value of the sum of the cost of fixed production assets, intangible assets and working capital in commodity and material assets.

The level of profitability of production assets is the higher, the higher the profitability of products (the higher the return on assets of fixed assets and the rate of turnover of working capital, the lower the costs per 1 ruble of production and unit costs for economic elements (labor tools, labor materials)).

, where

P -profit before tax,PF -average annual cost of production assets

Return on assets of the enterprise

It is defined as the ratio of net profit to all assets of the enterprise

, where

PE -net profit,WB -balance currency

Profitability of financial investments

It is defined as the ratio of the amount of income from financial investments to the amount of financial investments.

, where

Pfv -profit of the enterprise from financial investments for the period,FV -value of financial investments

Profitability of production

Profitability of production is defined as the ratio of gross profit to the cost of production.

, where

VP -gross profit,SS -production cost

Payback period of equity

Payback period of equity. It is found by dividing the average annual value of equity capital by the net profit of the analyzed period. It is important for owners and shareholders, because through an assessment of its size and dynamics, they, as a rule, draw conclusions about the effectiveness of their capital management.

The payback period of equity is calculated using the following formula:

, where

SC -average cost of equity,PE -net profit

Profitability- a relative indicator characterizing the degree economic efficiency use of any resource (material, monetary, labor). It is calculated according to special formulas, usually has a percentage expression. Profitability can be called the most important indicator for evaluating the activities of a commercial enterprise.

This concept is used very widely, is divided into several types, but, in principle, it represents the ratio of the received from the activity to any asset or resource.

Therefore, the profitability ratio is calculated by dividing the amount of profit by the value of interest. Both values are accepted in the same units. Since it is rather difficult to express profit in non-cash form, the denominator is also given in monetary terms. Most often, profitability is calculated as a percentage.

It should be noted that the approach to profitability ratios is not as strict as to purely mathematical formulas, there is a replacement of words that are similar in sound and content of concepts. So the profitability of production can be considered both as the profitability of the process, and as profitability production complex. Therefore, it is worth considering not only the name of the term, but the components of a particular formula, their practical meaning.

The most common are the following profitability indicators:

Product profitability(realized) - the profit received from the sale of a certain amount of products is divided by the cost of this product.

It is calculated in much the same way profitability of services sold. Only in the denominator is taken the cost of providing a certain number of services in the numerator.

Profitability of fixed assets- the ratio of net profit from activities for the period to the cost of fixed assets.
Profitability of the enterprise- equal to the ratio of profit to the total cost of fixed and current assets of the enterprise
Staff profitability- represents the ratio for a certain period to the average number of personnel for a specified period.

The following indicators are also used:

General- the ratio of net profit for the period to the average total value of the company's assets.
- the same as the above coefficient, but in relation to the equity capital of the organization.
Return on assets used- profit before taxes and mandatory interest in relation to the amount of equity and long-term loans.

The list of profitability ratios used is not limited to those listed above. With the development of economic and financial relations, the development of investment, new, previously unused coefficients appear. General rule their unifying factor could be approximately expressed as the ratio of the value of the benefit (profit) received to the resource used to obtain it.

Let us dwell on the most commonly used in our conditions and, therefore, indicators that are informative for us:

Profitability of sales(ROS, from the English Return on Sales,) is a very important indicator that reflects the share of profit in the total amount (turnover). Most often, profit before taxes is used in the calculation - operating profit. This seems reasonable, since the amount of taxes is not directly related to the efficiency of activities, and profitability, first of all, is an indicator economic effect. But it can also be applied net profit margin. This allows you to better represent the real benefits of sales.

Accordingly, the return on sales can be calculated using the following formulas:

Total return on sales = Gross profit / Revenue;

Net return on sales = Net profit / Revenue.

The concept of revenue can be replaced by the concept of turnover, which does not affect the essence of the ratio.

These ratios are used primarily to assess the current state of affairs. Profitability of sales allows you to determine the operational efficiency of the organization, i.e. her ability to organize and control current activities. Which, in turn, shows the direction of the company's movement, fall or rise.

The profitability of sold products is defined as the ratio of profit from the sale of products to the sum of the costs of production and sale of these products. Costs, in this case, include material costs for production (the cost of raw materials, components, energy, etc.), wages, overheads, trading costs.

RRP = (CPU - PSP) / PSP x 100;
Where:

Ррп - profitability of sold products;
CPU - selling price of products;
PSP - the total cost of this product.

Sometimes this ratio is called the profitability of production (as a process).

The profitability of production (as a production complex) is calculated as the ratio of the amount of profit (total) to the sum of the costs of fixed and normalized working capital.

ORP \u003d OP / (OS + OBS);

Where ORP - the total profitability of production;

OS - fixed assets of the enterprise (buildings, structures, equipment);

OBS - normalized working capital (inventory, semi-finished products for the production cycle, finished products in warehouses).

Based on the foregoing, we can conclude that the concept of profitability is very broad. Methods and formulas for its calculation are a flexible working tool for determining the profitability, benefits from certain investments in material, human and other resources, assets.

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