Profitability of products sold and return on sales. The formula for the profitability of products sold, which the numbers can tell you about. Key indicators include
Any sales are carried out to achieve the same goal - making financial profit. But it is impossible to give an objective assessment of sales effectiveness without an indicator of their profitability.
What is profitability?
Return on sales, also known as the return on sales ratio, is a percentage expression of the share of profit from each ruble earned. In other words, return on sales is the ratio of net income to the amount of revenue from product sales, multiplied by one hundred percent.
Some entrepreneurs are misled into thinking that return on sales shows profitability relative to investment. cash. It is not right. The return on sales ratio allows you to determine what amount of money in the volume of products sold is the profit of the enterprise minus taxes and related payments.
This profitability indicator shows profitability solely from the sales process itself. That is How much does the cost of the product pay for the costs of the production process of the product/service? (purchase of necessary components, use of energy and human resources, etc.).
When calculating the coefficient, such an indicator as the volume of capital (volume working capital). Thanks to this, you can safely analyze the profitability of sales of competing enterprises in your segment.
What does return on sales show an entrepreneur?
- The return on sales ratio allows you to characterize the most important thing for a company or enterprise - the sale of main products . In addition, the share of cost in the sales process is assessed.
- Knowing the profitability of sales, the company can control pricing policy and costs . It is worth noting that different companies produce goods through different strategies and techniques, which causes differences in profitability ratios. But even if two companies have the same revenue, operating expenses, and pre-tax profits, their return on sales will differ. This is due to the direct impact of the amount of interest payments on the total net profit.
- Return on sales is not a reflection of the planned effect of long-term investments . The bottom line is that if a company decides to change technological scheme or purchase innovative equipment, this ratio may decrease slightly. But it will regain its positions and surpass them if the modernization strategy was chosen correctly. By the way, if you want to improve your profitability, read the article “increasing profitability of sales.”
How to calculate return on sales?
To calculate the return on sales ratio, the following formula is used:
ROS – English abbreviation Return on Sales, which translated into Russian actually means the required profitability ratio, presented as a percentage;
NI– English abbreviation Net Income, an indicator of net profit expressed in monetary terms;
N.S.– English abbreviation Net Sales, the amount of profit received from the sale of manufactured products, expressed in monetary terms.
Correct initial data and dry calculations will allow you to determine the real profitability of sales. The formula for return on sales is simple - the resulting result is an indicator of production efficiency.
An illustrative example of calculating profitability:
Unfortunately, general formula profitability of sales can only show the efficiency or inefficiency of the company, but does not provide an answer about the problem areas of the business.
Suppose, after analyzing profitability data for 2 years, the company received the following figures:
In 2011, the company earned a profit of $2.24 million; in 2012, this figure increased to $2.62 million. Net profit in 2011 was $494 thousand, and in 2012 – $516 thousand. What changes did the profitability of sales undergo in 2012?
The profitability ratio for 2011 is equal to:
ROS2011 = 594 / 2240 = 0.2205 or 22%.
The profitability ratio for 2012 is equal to:
ROS2012 = 516 / 2620 = 0.1947 or 19.5%.
Let's calculate the final change in profitability of sales:
ROS = ROS2012 – ROS2011 = 22 – 19.5 = -2.5%.
In 2012, the company's sales profitability decreased by 2.5%.
Here you can see that profitability decreased by 2.5% over 2 years, but the reasons are not clear until a more detailed analysis is carried out. It includes:
- Examine changes in tax costs and deductions that are required to calculate in NI.
- Calculation of profitability of a product/service. Formula:
Profitability = (revenue - cost * - costs)/revenue * 100%
- Profitability of each sales manager. Formula:
Profitability = (revenue - salary * - taxes)/revenue * 100%.
- Advertising profitability of a product/service. Formula:
*If you provide services, then the cost includes: organizing a workplace for sales managers ( computer technology, rent of sq.m., telephone equipment, proportional per person communal payments etc.), their salary, phone costs, advertising, costs for the necessary software (CRM, 1C, etc.), payments for a virtual PBX.
Let us immediately note that it is possible to use a simpler formula for return on sales: ROS=GP ( gross profit) /NS (total revenue). But it is more appropriate for calculating “narrow” indicators (profitability for each manager, for a specific product, for a page on a website, etc.).
It is important to note that each manager may have a different sales structure: some sell only expensive goods and rarely, some sell small ones, but often - this is where the main difficulty will be in calculating net profit (margin after taxes). It is necessary to resort to the margin data of each product for each seller using CRM.
- Calculation of sales volumes and margins. Perhaps profitability has fallen because... the most marginal product ceased to be sold.
| Selling a site | Selling contextual advertising | |
|---|---|---|
| Profitability by formula | (500 thousand – 135 thousand – 90 thousand for taxes)/500 thousand = 55% | (900 thousand – 600 thousand – 162 thousand for taxes)/900 thousand = 15% |
| Sales volume per month | 500 thousand rubles (cost of 5 sites) | 900 thousand rubles (cost of 3 projects) |
| Material costs | 15 thousand rubles. (purchase of a domain, payment for software, advertising, etc.) | 600 thousand rubles (money given in advertising services and etc.) |
| Labor costs | 120 thousand rubles. (salary for at least 3 employees) | 40 thousand rubles. (salary for 1 employee) |
We said above that part of increasing profitability of sales is reducing costs and expenses. But at the same time, we recommend that you be careful with this point because... Negative consequences may follow in the form of deterioration in the quality of goods (services) and a decrease in the efficiency of specialists. To avoid this, it is necessary to approach the issue of increasing sales profitability in a comprehensive manner! It includes studying: The table shows that, despite the fact that contextual advertising brought to the company’s bank account more money, but its profitability is 3.7 times lower. This means that if managers sell websites poorly, but well contextual advertising– this means that a decrease in profitability cannot be avoided.
- Competitors
- Sales and Cost Structures
- Sales channels
- CRM uses
- Managers' effectiveness
After studying all this, you can move on to developing sales tactics and strategies. And only now make operational decisions.
The completed data shows that it is possible to increase the costs of the offices page because they provide the greatest profitability for the business.
Calculating profitability for all layers is quite a labor-intensive task, especially if you have not done this before, and analysis is required over several months or even years (more than one week). And still, in the end, you may get an answer to the question “where are the strongest and weakest points,” but not understand what and how to do next. Therefore, we offer you our assistance in collecting, analyzing, developing recommendations, executing and monitoring the optimization of the sales department to increase business profitability.
Profitability is the most important indicator in assessing the activities of an enterprise.
It is characterized by a state where the use of funds leads not only to the enterprise covering expenses, but also to generating income.
The profitability of an enterprise is assessed by both absolute and relative indicators.
Absolute indicators are expressed in profit and are determined by value, that is, the national currency.
Relative indicators are measured as percentages and characterize profitability.
Profitability indicators are influenced by inflation processes to a lesser extent in relation to the amount of profit.
This is due to the fact that profitability is determined by different ratios of profit and capital or profit received and production costs.
Profitability is calculated regardless of the type of activity of the enterprise. Profitability indicators are the assets of the enterprise, whose profitability represents the remaining income of the enterprise.
It is divided by the average value of assets over the past period. The number obtained after division must be multiplied by 100%.
Product profitability formula: return on assets = enterprise profit: value of assets in annual average X 100%.
The resulting number characterizes the income received from each ruble used to create the assets of the enterprise. The assets of an enterprise and their profitability show the profitability of the enterprise for a specific time.
Thus, the profitability of products is determined by a formula abbreviated as follows: RP = P/PZ x 100%
From the above it follows that RP is an indicator of production profitability, PZ-production costs, P-profit, calculated based on production volume.
Product profitability is determined by existing calculation limitations, let's look at them:
- Only quantities that correspond to each other can be correlated;
That is, only those costs that are incurred to obtain profit in a specific volume are subject to accounting. - The profitability of products sold is calculated in a similar way: the calculation includes indicators of expenses that are written off for sale and reduce profit from sales;
- Before calculating the profitability of production using the formula, it is necessary to sum up all costs incurred during production process;
- Profitability of production can be calculated after taxation of enterprises or before it.
Examples of calculations from practice
For example: an enterprise produces diapers and diapers for children. Total revenue for last month amounted to 400 million rubles.
The cost of products sold, including costs of commerce and staffing of the enterprise, is 240 million rubles.
The main indicators have been indicated, now the question arises of how to calculate the profitability of goods produced by a particular enterprise?
First you need to find the income for the previous month. All proceeds are deducted full cost, it turns out 160 million rubles. We apply the basic formula: 160/240x100 = 66.66%.
It turns out that the profit received from the enterprise from each ruble of production is in this case 66 rubles 66 kopecks. This is a good return on goods.
Why is it necessary to evaluate the profitability of goods? The presence of the following factors plays a role here:
- Competitiveness of the enterprise in the sphere of consumption;
- Production efficiency at the enterprise.
A decrease in the profitability of goods directly indicates a decrease in consumer demand for the products of a particular manufacturer, or low production efficiency at the enterprise.
Profitability can be calculated for several products related to a certain product group. And here we need to give another example:
The company produces three types of products with an average profitability of 30%. To calculate the profitability for each product, you need to use the basic formula, but in relation to each product separately.
The desired result of every enterprise is profit. However, the profit in in absolute terms(in rubles, thousands or millions) is just a number on the income statement. For the owner or investor, it is, of course, important, but not informative enough. In order to understand how hard this profit was obtained, there are relative indicators of profitability, called profitability indicators. One of them is production profitability.
Profitability of production correlates the amount of profit received with the amount of funds that made it possible to obtain it, shows the amount of profit per 1 ruble. spent production assets. The fewer funds used to obtain a certain amount profits, the higher the profitability of production, which means the higher the efficiency of the company.
Read our articles about other profitability indicators:
- “We determine return on assets (balance sheet formula)”,
- “Determining return on equity (formula).”
Production profitability formula
Profitability of production is the ratio of the total amount of profit (balance sheet profit) to average annual cost fixed and working capital.
The formula for calculating production profitability is as follows:
Rproduct = Pr / (OF + ObS) × 100,
Rproduct—production profitability;
PF - average cost of fixed production assets for the billing period;
OBC is the average cost of working capital.
Where to get the numbers for calculations
Information for calculating production profitability is taken partly from financial statements and partly from accounting analytics.
Thus, we obtain the amount of balance sheet profit from the statement of financial results - from line 2300 “Profit (loss) before tax” of Form 2.
Read more about this report in the article “Filling out Form 2 of the balance sheet (sample)” .
Data for the denominator of the fraction will most likely have to be looked for in analytical accounting registers. It is unlikely to be possible to take figures from the balance sheet. For example, because it reflects aggregate data on the enterprise’s fixed assets, and to calculate the profitability of production, the balances of production assets are needed. This means that detailed information about the OS is needed.
Production profitability, product profitability and sales profitability - is there a difference?
Of course there is. These are separate types of profitability, three independent indicators. It has already been said above that production profitability shows the share of profit per 1 ruble. spent production assets.
In turn, product profitability shows the amount of profit per 1 ruble. cost (full or production). It is calculated using the formula:
Rpr = Pr / Ss × 100,
where: Rpr - product profitability;
Pr - profit;
CC - cost price.
As for the profitability of sales (it is also called total profitability), it carries information about the amount of profit per 1 ruble. revenue. It is calculated using the formula:
ROS = Pr / Op × 100%,
where: ROS - return on sales;
Pr - profit;
Op - sales volume or revenue.
As you can see, the indicators really differ both in meaning and in calculation. And they should not be confused.
Hello! Today we’ll talk about profitability, what it is and how to calculate it. aimed at making a profit. The correct operation and effectiveness of the management methods used can be assessed using certain parameters. One of the most optimal and informative is the profitability of the enterprise. For any entrepreneur, understanding this economic indicator is an opportunity to assess the correctness of resource consumption in the enterprise and adjust further actions in all directions.
Why calculate profitability
In many cases, the financial profitability of an enterprise becomes a key indicator for analyzing the activities of a business project, which helps to understand how well the funds invested in it pay off. Correctly calculated indicators for several factors and items are used by the entrepreneur for pricing services or goods, for general analysis at the working stage. They are calculated as a percentage or used in the form of a numerical coefficient: the larger the number, the higher the profitability of the enterprise.
In addition, it is necessary to calculate enterprise profitability ratios in the following production situations:
- To forecast the possible profit that the company can receive in the next period;
- For comparative analysis with competitors in the market;
- To justify large investment investments, helping a potential transaction participant determine the projected return on a future project;
- When determining the real market value of a company during pre-sale preparation.
Calculation of indicators is often used when lending, obtaining loans or participating in joint projects, developing new types of products.
Enterprise profitability
Discarding scientific terminology, we can define the concept:
Enterprise profitability as one of the main economic indicators that well characterizes the profitability of an entrepreneur’s labor. Its calculation will help you understand how profitable the chosen project or direction is.
Many resources are used in the production or sales process:
- Labor (hired workers, personnel);
- Economic;
- Financial;
- Natural.
Their rational and correct operation should bring profit and fixed income. For many enterprises, analysis of profitability indicators can become an assessment of operating efficiency for a certain (control) period of time.
In simple words, business profitability is the ratio between the costs of the production process and the resulting profit. If after a period (quarter or year) a business project has produced a profit, then it is called profitable and beneficial for the owner.
For correct calculations and forecasting performance in future activities, it is necessary to know and understand the factors that influence profitability to varying degrees. Experts divide them into exogenous and endogenous.
Among exogenous ones there are:
- Tax policy in the state;
- General sales market conditions;
- Geographical location of the enterprise;
- Level of competition in the market;
- Features of the political situation in the country.
In many situations, the profitability and profitability of an enterprise is influenced by its geographic location, proximity to sources of raw materials or consumer clients. The situation is having a huge impact on stock market and currency fluctuations.
Endogenous or internal production factors that greatly influence profitability:
- Good working conditions for personnel of any level (which necessarily has a positive effect on product quality);
- Efficiency of the company's logistics and marketing policy;
- General financial and management policies of management.
Taking into account such subtleties helps an experienced economist make the level of profitability as accurate and realistic as possible.
Factor analysis of enterprise profitability
To determine the degree of influence of any factors on the level of profitability of the entire project, economists conduct a special factor analysis. It helps to determine the exact amount of income received under the influence of internal factors, and is expressed by simple formulas:
Profitability = (Profit from sales of products / Cost of production) * 100%
Profitability = ((Product price - Product cost) / Product cost)) * 100%
Usually when such financial analysis use his three-factor or five-factor model. Quantity refers to the number of factors used in the counting process:
- For the three-factor factor, the profitability of manufactured products, the indicator of capital intensity and turnover of fixed assets are taken;
- For the five-factor it is necessary to take into account labor and material intensity, depreciation, and turnover of all types of capital.
Factor calculation is based on the division of all formulas and indicators into quantitative and qualitative, which help to study the development of the company from different angles. It shows a certain relationship: the higher the profit and capital productivity from the production assets of an enterprise, the higher its profitability. It shows the manager the relationship between standards and business results.
Types of profitability
In various production areas or types of business, specific indicators of enterprise profitability are used. Economists identify three significant groups that are used almost everywhere:
- Profitability of products or services: the basis is the ratio of the net profit received from the project (or direction in production) and the costs spent on it. It can be calculated both for the whole enterprise and for one specific product;
- Profitability of the entire enterprise: this group includes many indicators that help characterize the entire enterprise as a whole. It is used to analyze a working project by potential investors or owners;
- Return on assets: a fairly large group of various indicators that show the entrepreneur the feasibility and completeness of using a certain resource. They allow you to determine the rationality of using loans, your own financial investments or other important assets.
Analysis of the profitability of an enterprise should be carried out not only for internal needs: it important stage before major investment projects. It may be requested when providing a loan, or it may become the starting point for enlarging or reducing production.
A real complete picture of the state of affairs at the enterprise can be obtained by calculating and analyzing several indicators. This will allow you to see the situation from different angles and understand the reason for the decrease (or increase) in expenses for any items. To do this, you may need several coefficients, each of which will reflect a specific resource:
- ROA – return on assets;
- ROM – level of product profitability;
- ROS – return on sales;
- ROFA – return on fixed assets;
- ROL – personnel profitability;
- ROIC – return on investment in an enterprise;
- ROE - profitability equity.
These are just a small number of the most common odds. To calculate them, the numbers from open sources– balance sheet and its annexes, current sales reports. If an estimated assessment of the profitability of a business for launch is needed, data is taken from marketing analysis market for similar products or services, from competitors' reports available in a general overview.
Calculation of enterprise profitability
The largest and most general indicator is the level of profitability of the enterprise. To calculate it, only accounting and statistical documentation for a certain period is used. In a more simplified version, the formula for enterprise profitability looks like this:
P= BP/SA*100%
- P is the main profitability of the enterprise;
- BP is an indicator of balance sheet profit. It is equal to the difference between revenue received and cost (including organizational and management costs), but before taxes are subtracted;
- CA – the total value of all current and non-current assets, production capacity and resources. It is taken from the balance sheet and its annexes.
For the calculation, you will need the average annual cost of all tangible assets, the depreciation of which is used in the formation of the selling price for services or goods.
If the assessment of the enterprise's profitability is low, then certain management measures should be taken to improve the situation. It may be necessary to adjust production costs, reconsider management methods or rationalize the use of resources.
How to calculate return on assets
A complete analysis of an enterprise's profitability indicators is impossible without calculating the efficiency of using various assets. This is the next important stage, which helps to assess how fully all assets are used and understand their impact on profit. When assessing this indicator, pay attention to its level. A low value indicates that capital and other assets are not performing sufficiently, while a high value confirms the correct management tactics.
In practice, the return on assets (ROA) indicator for an economist means the amount of money that falls on one unit of assets. In simple words, it shows the financial return of a business project. Calculation for all types of assets must be carried out regularly. This will help to timely identify an object that does not bring return or benefit in order to sell it, lease it or modernize it.
In economic sources, the formula for calculating return on assets looks like:
- P – profit for the entire analyzed period;
- A - average value by asset type over the same period.
This coefficient is one of the three most revealing and informative for a manager. Getting value less than zero indicates that the enterprise is operating at a loss.
Return on fixed assets
When calculating assets, the profitability ratio of fixed assets is separately identified. These include various means of labor that are directly or indirectly involved in the production process without changing the original form. The period of their use must exceed a year, and the amount of depreciation is included in the cost of services or products. Such basic means include:
- Any buildings and structures in which workshops, offices, laboratories or warehouses are located;
- Equipment;
- Heavy duty vehicles and loaders;
- Office and work furniture;
- Passenger cars and passenger transport;
- Expensive tool.
Calculating the profitability of fixed assets will show managers how effective economic activity business project and is determined by the formula:
R = (PR/OS) * 100%
- PE – net profit for a certain period;
- OS – cost of fixed assets.
This economic indicator very important for commercial manufacturing enterprises. It gives an idea of the share of profit that falls on one ruble of invested fixed assets.
The coefficient directly depends on profitability and should not be less than zero: this means that the company is operating at losses and is using its fixed assets irrationally.
Profitability of products sold
This indicator is no less important for determining the level of profitability and success of the company. In international economic practice, it is designated as ROM and is calculated using the formula:
ROM=Net profit/cost
The resulting coefficient helps determine the efficiency of sales of manufactured products. In fact, this is the ratio of sales income and costs of its production, packaging and sale. For an economist, the indicator clearly demonstrates how much each ruble spent will bring in percentage terms.
The algorithm for calculating the profitability indicator may be more understandable for beginners products sold:
- The period in which it is necessary to analyze the indicator is determined (from a month to a whole year);
- The total amount of profit from sales is calculated by adding up all income from the sale of services, products or goods;
- Net profit is determined (according to the balance sheet);
- The indicator is calculated using the above formula.
A good analysis will include a comparison of profitability of products sold over several periods. This will help determine the decline or increase in the company’s income over time. In any case, you can conduct a more in-depth review of each supplier, group of products or assortment, and work through the customer base.
Return on sales
Margin or return on sales is another important consideration when pricing a product or service. It shows what percentage of total revenue comes from the profit of the enterprise.
There is a formula that helps calculate this type of indicator:
ROS= (Profit / Revenue) x 100%
As a basis for calculation, can be used different types arrived. Values are specific and vary depending on the product range, company activity and other factors.
Sometimes experts call return on sales the rate of profitability. This is due to the ability to show the share of profit in total sales revenue. It is also calculated over time to track changes over several periods.
IN short term a more interesting picture can be given by operating profitability of sales, which can be easily calculated using the formula:
Operating return on sales = (Profit before tax / Revenue) x 100%
All indicators for calculations in this formula are taken from the “Profit and Loss Statement”, which is attached to the balance sheet. The new indicator helps the entrepreneur understand what real share of revenue is contained in each monetary unit of his revenue after paying all taxes and fees.
Such indicators can be calculated for a small enterprise, one department or an entire industry, depending on the task at hand. The higher the value of this economic coefficient, the better the enterprise performs and the more profit its owner receives.
This is one of the most informative indicators that helps determine how profitable a business project is. Without calculating it, it is impossible to draw up a business plan, track costs over time, or assess the profitability of the enterprise as a whole. It can be calculated using the formula:
R=VP/V, Where:
- VP – gross profit (calculated as the difference between the revenue received from the sale of goods or services and the cost);
- B – proceeds from sale.
The formula often uses a net profit indicator, which better reflects the state of affairs at the enterprise. The amount can be taken from the balance sheet appendix.
Net profit no longer includes income tax, various selling and overhead expenses. It includes current operating costs, various penalties and paid loans. To determine it, the total revenue that was received from the sale of services or goods (including discounts) is calculated. All expenses of the enterprise are deducted from it.
It is necessary to carefully select the time period depending on the task of financial analysis. To determine the results of internal control, the calculation of profitability is carried out over time regularly (monthly or quarterly). If the goal is to obtain an investment or loan, a longer period is taken for comparison.
Obtaining the profitability ratio provides a lot of information for the management personnel of the enterprise:
- Shows the correspondence between actual and planned results, helps evaluate business performance;
- Allows you to conduct comparative analysis with the results of other competing companies in the market.
If the indicator is low, the entrepreneur needs to think about improving it. This can be achieved by increasing the amount of revenue received. An alternative is to increase sales, raise prices slightly, or optimize costs. You should start with small innovations, observing the dynamics of changes in the coefficient.
Personnel profitability
One interesting relative indicator is personnel profitability. Almost all enterprises, regardless of their form of ownership, have long taken into account the importance effective management labor resources. They influence all areas of production. To do this, it is necessary to monitor the number of personnel, their level of training and skill, and improve the qualifications of individual employees.
The profitability of personnel can be determined using the formula:
- PE – net profit of the enterprise for a certain period of time;
- CH – number of employees at different levels.
In addition to this formula, experienced economists use more informative ones:
- Calculate the ratio of all personnel costs to net profit;
- The personal profitability of one employee, which is determined by dividing the costs associated with him by the share of profit brought to the enterprise budget.
Such a complete and detailed calculation will help determine labor productivity. Based on it, you can carry out a kind of diagnostics of jobs that may be reduced or need to be expanded.
Do not forget that the profitability of personnel may be affected by low-quality or old equipment, its downtime or other factors. This can reduce performance and incur additional costs.
One of the unpleasant, but sometimes necessary methods is often reducing the number of employees. Economists must calculate the profitability for each type of personnel in order to highlight the weakest and most vulnerable areas.
For small enterprises, regular calculation of this coefficient is necessary in order to adjust and optimize their expenses. With a small team, it is easier to carry out calculations, so the result can be more complete and accurate.
Profitability threshold
For many trading and manufacturing enterprises, calculating the profitability threshold is of great importance. It means the minimum volume of sales (or sales finished products), in which the revenue received will cover all costs of production and delivery to the consumer, but without taking into account profit. In fact, the profitability threshold helps the entrepreneur determine the number of sales at which the enterprise will operate without losses (but will not make a profit).
In many economic sources, this important indicator can be found under the name “break-even point” or “ critical point" It means that the enterprise will receive income only if it overcomes this threshold and increases the coefficient. It is necessary to sell goods in quantities that exceed the volume obtained according to the formula:
- PR – threshold (norm) of profitability;
- PZ – fixed costs for sales and production;
- Kvm – gross margin coefficient.
The last indicator is pre-calculated using the formula:
Kvm=(V – Zpr)*100%
- B – enterprise revenue;
- Zpr – the sum of all variable costs.
The main factors influencing the profitability threshold ratio:
- Product price per unit;
- Variables and fixed costs at all stages of production and sale of this product (service).
With the slightest fluctuation in the values of these economic factors, the value of the indicator also changes up or down. Of particular importance is the analysis of all expenses, which economists divide into fixed and variable. The first include:
- Depreciation for fixed assets and equipment;
- Rent;
- All utility costs and payments;
- Salaries of enterprise management employees;
- Administrative costs for their maintenance.
They are easier to analyze and control, and can be monitored over time. Variable costs become more “unpredictable”:
- Wages of the entire workforce of the enterprise;
- Fees for servicing accounts, loans or transfers;
- Costs for the purchase of raw materials and components (especially when exchange rates fluctuate);
- Payment for energy resources spent on production;
- Fare.
If a company wants to remain consistently profitable, its management must control the rate of profitability and analyze expenses for all items.
Any enterprise strives to develop and increase capacity, open new areas of activity. Investment projects also need detailed analysis, which helps determine their effectiveness and adjust investments. In domestic practice, several basic calculation methods are more often used, giving an idea of what the profitability of a project is:
- Methodology for calculating net present value: it helps determine the net profit from a new project;
- Methodology for calculating the profitability index: necessary to generate income per unit of cost;
- Method for calculating marginal efficiency of capital (internal rate of return). It is used to determine the maximum possible level of capital expenditure in new project. The internal rate of return is most often calculated using the formula:
INR = (current net worth / current initial investment amount) * 100%
Most often, such calculations are used by economists for certain purposes:
- If necessary, determine the level of expenses in the case of developing a project using raised funds, loans or credits;
- To prove cost-effectiveness and document the benefits of the project.
If there are bank loans, calculation internal norm profitability will give the maximum allowable interest rate. Its excess in real work will mean that the new venture or direction will be unprofitable.
- Methodology for calculating the return on investment;
- A more accurate modified method for calculating the internal rate of return, for the calculation of which the weighted average cost of the advanced capital or investment is taken;
- An accounting rate of return technique that is used for short-term projects. In this case, profitability will be calculated using the formula:
RP=(PE + depreciation/amount of investment in the project) * 100%
PE – net profit from a new business project.
Full payment different ways is done not only before developing a business plan, but also during the operation of the facility. This is a necessary set of formulas that owners and potential investors use when trying to assess the possible benefits.
Ways to increase enterprise profitability
Sometimes the analysis produces results that require serious management decisions. To determine how to increase profitability, it is necessary to understand the reasons for its fluctuations. To do this, the indicator for the reporting and previous periods is studied. Typically, the base year is the past year or quarter in which there was high and stable revenue. What follows is a comparison of the two coefficients over time.
The profitability indicator may be affected by changes in selling prices or production costs, increases in costs or the cost of raw materials from suppliers. Therefore, it is necessary to pay attention to factors such as seasonal fluctuations in the demand of product buyers, activity, breakdowns or downtime. When solving the problem of how to increase profitability and, it is necessary to use various ways profit increase:
- Improve the quality of products or services and their packaging. This can be achieved by modernizing and re-equipping its production facilities. This may require serious investment at first, but in the future it will more than pay off in resource savings, a reduction in the amount of raw materials, or a more affordable price for the consumer. You can consider the option;
- Improve the properties of your products, which will help attract new consumers and become a more competitive company in the market;
- Develop a new active marketing policy for your business project, attract a good management personnel. Large enterprises often have an entire marketing department dedicated to market analysis, new promotions and searching for a profitable niche;.
- Various ways to reduce costs in order to compete with a similar range. This should not come at the expense of the quality of the product!
The manager needs to find a certain balance among all the methods in order to achieve a lasting positive result and maintain the enterprise’s profitability indicators at the proper level.
Profitability is a relative indicator that has the property of comparability and can be used when comparing the activities of different economic entities.
The profit margin characterizes the absolute profitability of production, but does not give an idea of the efficiency of the firms. Profitability indicators characterize the final results of business more fully than profit, because their value shows the relationship between the effect and the available or used resources. They are used to evaluate the activities of an enterprise and as a tool for investment policy and pricing.
Profitability indicators used in economic calculations characterize relative profitability and allow one to estimate how much profit a company has from each ruble of funds invested in assets. There are indicators of product profitability and enterprise profitability. Product profitability is measured in 3 ways: profitability of products sold, commercial products and a separate product.
Profitability of products sold- this is the ratio of profit from the sale of products to its total cost.
Profitability of commercial products characterized by the cost indicator per monetary unit of commodity output or its reciprocal value.
(T-S)/T × 100,
Where T- commercial products at wholesale prices of the enterprise;
WITH- the full cost of commercial products.
The classic formula for calculating the profitability of commercial products is the formula (T-S)/S × 100.
Product profitability- is the ratio of profit per unit of product to the cost of this product. The profit on a product is equal to the difference between its wholesale price and cost.
Profitability is one of the basic economic categories economy. The interpretation of the term “profitability” does not cause much disagreement, since it is understood as a ratio, the numerator of which always includes profit. Return on capital is calculated as the ratio of profit to capital (assets), return on costs is the ratio of profit to cost (costs), return on sales is the ratio of profit to price (sales revenue).
Profitability production activities (recoupment of costs) (R z) is calculated by the ratio of balance sheet (P b) or net profit (P h) to the amount of costs for sold or produced products (3):
R z = P b / Z or R z = P H / Z
It shows how much profit the company makes from each ruble spent on the production and sale of products. It can be calculated for the enterprise as a whole, its individual divisions and types of products.
Return on sales (R p) is calculated by dividing the profit from the sale of products, works and services or net profit by the amount of revenue received (RP). Characterizes efficiency entrepreneurial activity: how much profit does the enterprise have from ruble sales. This indicator is widely used in market economy. Calculated as a whole for the enterprise and certain species products.
R p =P b /RP
Return on capital (Rk) is calculated by the ratio of book profit to the average annual value of all invested capital or its individual components: own (shareholder), borrowed, fixed, working, production capital, etc.
R k = P b /åIK
All these indicators can be calculated on the basis of balance sheet profit, profit from sales of products and net profit.
IN general view index economic efficiency expressed by the formula:
E. ef. = Economic effect(profit) / resources or costs × 100.
In the process of analysis, it is necessary to study the dynamics of the listed profitability indicators, the implementation of the plan at their level and conduct inter-farm comparisons with competing enterprises. However, comparisons with competing enterprises in our industry are not possible, since these enterprises do not exist in our country, and it is not possible to obtain data from foreign companies. Our company is highly specialized, working on government and defense orders.
The profitability of an enterprise (total profitability) is defined as the ratio of balance sheet profit to the average cost of fixed production assets and normalized working capital. The ratio of the fund to material and equivalent costs reflects the profitability of the enterprise. In other words, the level of overall profitability, that is, an indicator reflecting the growth of all invested capital (assets), is equal to earnings before interest multiplied by 100 and divided by assets.
The level of overall profitability is a key indicator when analyzing the profitability of an enterprise. But if you want to more accurately determine the development of a company based on the level of its overall profitability, it is necessary to additionally calculate two more key indicators: return on turnover and the number of capital turnover.
Profitability of turnover reflects the relationship between the gross revenue (turnover) of an enterprise and its costs and is calculated using the formula:
Profitability of turnover = × 100
The greater the profit compared to the gross revenue of the enterprise, the greater the profitability of turnover.
The number of capital turnover reflects the ratio of the gross revenue (turnover) of an enterprise to the amount of its capital and is calculated by the formula:
Number of capital turnover = 
The higher the firm's gross revenue, the greater the number of turnover of its capital. As a result, it follows that
Overall profitability level=
Profitability and profitability indicators have a common economic characteristics, they reflect the final efficiency of the enterprise and its products. Profitability indicators are actively involved in financial analysis processes -economic activity enterprises, financial planning, development of management decisions, decision-making by potential creditors and investors.
The main indicator of the level of profitability is the ratio of the total amount of profit to production assets.
There are many factors that determine the amount of profit and the level of profitability. These factors can be divided into internal and external. External are factors independent of effort of this team, for example, changes in prices for materials, products, transportation tariffs, depreciation rates, etc. Such events are carried out on a general scale and have a strong impact on the general indicators of production and economic activity of enterprises. Structural changes in the product range significantly affect the amount of products sold, cost and profitability of production.
The task of economic analysis is to identify the impact external factors, determine the amount of profit received as a result of the action of the main internal factors, reflecting the labor investments of workers and the efficiency of use of production resources.
Profitability (profitability) indicators are general economic indicators. They reflect the final financial result and are reflected in the balance sheet and statements of profit and loss, sales, income and profitability.
Profitability can be considered as a result of the influence of technical and economic factors, and therefore as objects of technology -economic analysis, the main goal of which is to identify the quantitative dependence of the final financial results production and economic activities from the main technical and economic factors.
Profitability is the result of the production process; it is formed under the influence of factors related to increasing the efficiency of working capital, reducing costs and increasing the profitability of products and individual products.
The overall profitability of an enterprise must be considered as a function of a series quantitative indicators- factors: structure and capital productivity of fixed production assets, turnover of standardized working capital, profitability of products sold. This is the 2nd approach to analyzing the profitability of an enterprise. For such an analysis, a modified formula for calculating the overall profitability indicator proposed by A.D. is used. Sheremet.
R= 
where P is the overall profitability of the enterprise%;
E - total (balance sheet) profit, % of the volume of products sold;
U - specific gravity active part in the total cost of fixed production assets, unit share;
M is the capital productivity ratio of the active part of fixed production assets;
K is the turnover ratio of normalized funds.
Methodology for analyzing overall profitability:
1) by efficiency factors;
2) depending on the size of profit and the size of production factors.
Return on sales is calculated by dividing the profit from the sale of products, works and services or net profit by the amount of revenue received (TU). Characterizes the efficiency of entrepreneurial activity: it shows how much profit the enterprise has from ruble sales. This indicator is widely used in a market economy. It is calculated for the enterprise as a whole and for individual types of products. The formation of the return on sales indicator is presented below:
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Question No. 27. Analysis of the profitability of production at the company.