How to calculate the profitability of an enterprise: features, formula and recommendations

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Analysis of the company's activities is an important condition for effective management. Without this, it is impossible to control the work of the organization, to develop actions to improve it. One of the important indicators that are studied by analysts is profitability. It has a specific calculation formula. Correctly interpreting the result, you can determine the effectiveness of the organization's business. How to calculate profitability will be discussed in detail later.

Definition

How to calculate the profitability of an enterprise? This indicator is necessarily considered in the process of assessing the effectiveness of the organization. This is a relative value, which is measured as a percentage. It allows you to draw conclusions about whether the company effectively disposed of its available resources. For the calculation, you will need to determine the amount of profit, as well as the number of assets that were spent on it.receipt.

Each enterprise carries out basic, financial, investment activities. Therefore, the profitability is calculated for each of them separately. This allows us to conclude in which areas it is advisable to invest funds, and in which not. Also, profitability allows you to identify some of the problems that hinder the development of individual parts or the entire organization as a whole.

In other words, profitability is the amount of profit that was received by the company for each ruble of invested costs. The operation of the organization will break even only if the costs do not exceed the profit. Each company seeks to improve the performance of its activities. In this case, it works not only without losses, but also with a profit. This means that the company has worked profitably and efficiently. Her total profits exceeded her total costs.

There is a certain technique how to calculate the level of profitability. For each enterprise, there are priority areas for assessing its activities. Therefore, profitability is evaluated from different angles. At the same time, they evaluate the feasibility of using total assets, as well as own funds or other components of the property.

Features of indicators

There are several approaches to consider on how to calculate the profitability of a business. The presented indicator allows us to consider how effectively in the course of its activities the enterprise spends the available financial, labor, natural, material andother resources. If in the reporting period the company could not get a sufficient level of profit when using them, you need to find the cause and eliminate the adverse factors.

If an organization conducts non-commercial activities, the efficiency of its work reflects profitability. If the analysis of the work of a commercial structure is carried out, it is necessary to calculate not only profitability, but also its quantitative characteristics. Moreover, in this case, the calculation must be carried out with high accuracy. Therefore, in this case, you will need to learn how to calculate the profitability of production, assets, products and other aspects of activity. For each of these types, certain calculation formulas are used.

Regardless of which profitability indicator of an enterprise is calculated by an analyst, they can be compared with the level of efficiency. This is the ratio of costs and benefits. If a business has made a profit in the reporting period, it is considered profitable.

There are three groups of profitability indicators. The first includes coefficients, the calculation of which is based on the resource approach. The second group includes indicators that are based on the cost method, and the third - on the profitability of sales. Before the calculation, it is necessary to determine the goals of the analysis. After that, they choose which profitability indicators can most fully reflect the situation that has developed at the enterprise.

Calculation formula

There is a simple formula for calculating the profitability of an enterprise. To determine it, you need to know the total amount of netprofit for the period under study. The second part of the formula will be the costs incurred by the organization in the course of its activities. The result that will be obtained during the division is a coefficient. Profitability is usually presented as a percentage. To do this, the coefficient is simply multiplied by 100.

Property of an enterprise consists of current and non-current assets. For the calculation, it is necessary to take into account their total number. This will require accounting information. The data of form No. 1 “Balance sheet” and form No. 2 “Report on financial results” take part in the calculation.

Considering the formula for how to calculate the profitability of an enterprise, you will need to present it in a simplified form. In this case, it looks like this:

RP=P / A100, where RP is the profitability of the enterprise, P - balance sheet profit, A - assets.

To get all the data for the calculation, you need to refer to the financial statements. The amount of book profit is determined as follows:

P=B - C, where B is the company's revenue for the study period, C is the cost of goods and services.

The calculation is carried out directly by the enterprise. The amount of book profit is indicated in form No. 2 in line 2300. This indicator is called "Profit before tax".

The value of assets is presented in form No. 1. This is the sum of revolving, non-revolving funds. It is presented in the total line 1600 of the balance sheet of the enterprise.

Calculation example

Calculating profit and profitability is quite simple. However, muchit is more difficult to draw correct conclusions about the state of affairs in production. One indicator, calculated in a specific period of time, does not reveal information about development trends. This is just a statement of fact, whether the enterprise worked profitably in the study period or not.

To draw the right conclusions, the company's profitability indicators are calculated in dynamics. They are also compared with the coefficients of other enterprises in the industry. In order to correctly evaluate the result obtained, it is necessary to consider an example of calculation.

Thus, in the previous period, the company received a net profit of 343 million rubles. At the same time, the costs amounted to 900 million rubles. In the reporting period, slightly different data were reflected in the financial statements. The company increased its net profit during the year. Its size amounted to 550 million rubles. At the same time, costs also increased. They amounted to 2,300 million rubles in the reporting period.

Next, you need to perform the calculation. In the previous period, the company's profitability was as follows:

RP=343/900100=38, 11%.

In the reporting period, the profitability was:

RP=550/2300100=23.91%.

It can be concluded that even though the company's pre-tax net income has increased over the year, so have the costs. Therefore, the profitability of the enterprise decreased in the reporting period by 14.2% compared to the previous period. This is a negative trend. The company needs to revise its list of costs. The company's funds began to be used less efficiently. Knowing how to calculate the levelprofitability, it is necessary to compare it with previous periods, as well as with the performance of competing companies.

Production profitability

To draw conclusions about the work of the enterprise, it is also necessary to consider the methodology of how to calculate the profitability of production. This is one of the most important characteristics of the company. The indicator reflects the degree of efficiency of production processes. If there are certain problems in this direction, they are reflected in the profitability of the enterprise. The problems that exist in this area of the company's activities should be resolved as quickly as possible.

If the profitability of production has decreased in dynamics, it is necessary to take measures to eliminate such negative trends. To do this, it will be necessary to develop an action plan to reduce the cost of goods and services, to consider ways to increase the rational use of equipment, material and other resources.

To calculate profitability, product prices for the year are determined by groups of homogeneous goods. The total cost is also calculated. Determining the profitability of each direction of production allows you to highlight the most profitable or unprofitable production. Further decisions on financing of each of them are made. The company must pay attention to strategic areas of production.

Unprofitable production, whose products are not in demand, should be closed. In some cases, it is necessary to revise the sales system. Sometimesunprofitable production can be promising. Plans need to be made to market these products effectively.

Calculation of the indicator

It should be considered in detail how to calculate the profitability of products. This will also require accounting data.

First, you need to determine the accounting profit. For this, the average annual amount of fixed assets is calculated. These are tangible assets that are subject to depreciation. To create an appropriate fund, the amount of deductions for the reporting period is charged to the cost price. Depreciation is charged at the expense of funds received from buyers when selling products.

To calculate fixed assets for the year, you need to perform a simple calculation. First, the value of fixed assets is added up at the beginning of each month. Next, you need to add up the number of tangible assets at the beginning and end of the year. The result is divided by 2. This indicator is presented in form No. 1 in line 1150.

Calculation of product profitability is calculated as follows:

RPr=P / (OF + OS)100, where OP is the average annual cost of fixed assets, OS is the average annual cost of working capital (line 1200 of Form No. 1).

You need to calculate the profitability for the year, and then consider the result in dynamics. Production activity is the main factor that affects the performance of the company. Therefore, it must be considered during the analysis.

Profitabilityassets

Studying how to calculate the profitability of an enterprise, it is necessary to pay attention to another important indicator of the effectiveness of its activities. It characterizes the feasibility of using assets. A low indicator indicates that the company's capital is working quite efficiently. Even if at the moment the company is making a profit, its size could be higher. Over time, if the management does not take the necessary measures to improve it, various unfavorable trends will be determined. Profits will gradually decline.

However, it should be noted that too high return on assets cannot be considered a positive characteristic of activity either. This suggests that the company does not have enough reserves. In an unstable situation, she will not be able to pay off her obligations on time. The capital structure should be as efficient as possible. For each enterprise, this indicator is determined individually.

The calculation of this indicator is quite simple. It will be necessary to consider the accounting data. Sales revenue can be determined by actual shipments of products or payments by customers. It depends on the chosen policy of the organization. It subtracts the cost, operating and fixed costs. Taxation is also deducted.

The result is the amount of net profit. At the enterprise, this result is presented in form No. 2 in column 2400.

Next, to calculate the financial return on equity of an organization,you will need to refer to Form No. 1. Here you need to determine the amount of all assets. It is presented in line 1600 of form No. 1. Net profit is divided by assets. The corresponding result is obtained.

Working capital

Having considered how to calculate the return on assets, it is necessary to consider the indicator in dynamics. It is compared with the results of the main competitors. If negative trends were revealed in this direction, the capital structure needs to be corrected. At the same time, such indicators as the profitability of current assets and fixed assets are calculated. This allows you to draw certain conclusions about the structure of capital. Analysts also consider a number of other indicators (for example, financial leverage, liquidity indicators, financial stability, etc.).

How to calculate return on working capital? For this, a simple formula is used:

ROA=NP / OA100, where NP is net profit (line 2400 of form No. 2), OA is the average cost of current assets for the year (line 1200 of form No. 1).

The higher the indicator, the more efficiently working capital is used. The decline in dynamics is a negative trend.

Fixed assets

To calculate the profit, profitability of the enterprise, you will need to analyze a number of factors that affect these indicators. For many companies, it is important to calculate the efficiency of using fixed assets. For this, a simple formula is used:

ROS=PE / OS100, where OS is the average annual cost of fixed assets (line 1150 of form No. 1).

Thisthe indicator is considered in dynamics. If negative trends are observed here, measures are being developed to increase the efficiency of the use of fixed assets.

Profitability threshold

During the analysis it is necessary to calculate the profitability threshold. This is necessary to determine the amount of sales that allows you to reach the break-even point. In this case, income equals expenses. The calculation is:

CR=PV/CME where CR is the profitability threshold, CR is fixed costs, CMC=gross margin ratio.

CME is easy to calculate. Variable costs must be subtracted from sales revenue. The result is divided by the total amount of sales proceeds.

Having considered the methodology of how to calculate the profitability of an enterprise, as well as the main performance indicators of its activities, we can conclude about the trends that are present in the organization. If necessary, take measures to eliminate the influence of negative factors.