Analysis of the enterprise 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 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 below.
Definition
How to calculate the profitability of the enterprise? This indicator must be considered in the process of evaluating the effectiveness of the organization. This is a relative value, which is measured as a percentage. It allows us to conclude whether the company has effectively managed its resources. For the calculation, you will need to determine the amount of profit, as well as the number of assets that have been spent on its receipt.
Each enterprise carries out the main, financial, investment activities. Therefore, profitability is calculated for each of them separately. This allows us to conclude in which areas of the funds it is advisable to invest, and in which not. Profitability also allows you to identify some 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 the company received for each ruble of invested costs. The work of the organization will be break-even only if the costs do not exceed profit. Each company seeks to increase the effectiveness of its activities. In this case, it works not only without loss, but also with profit. So the company worked profitably, efficiently. Its total profit exceeded total costs.
There is a certain methodology for calculating the level of profitability. For each enterprise, there are priority areas for evaluating its activities. Therefore, profitability is evaluated from different angles. At the same time, the feasibility of using total assets, as well as equity or other components of the property, is assessed.
Features indicators
You should consider several approaches to how to calculate the profitability of the business. The presented indicator allows you to consider how effectively in the process of its activities the enterprise spends the available financial, labor, natural, material and other resources. If in the reporting period the company was not able to get a sufficient level of profit when using them, you need to find the reason and eliminate the adverse factors.
If the organization conducts non-profit activities, the effectiveness of its work and 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 should 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 what the profitability indicator of the enterprise is calculated by the analyst, they can be compared with the level of efficiency. This is a cost-benefit ratio. If a business 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 a 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 objectives of the analysis. After that, choose which profitability indicators can fully reflect the situation prevailing in 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 net profit for the study period. The second part of the formula will be the costs that were incurred by the organization in the process of its activities. The result that will be obtained during the division is a coefficient. Profitability is usually presented as a percentage. For this, the coefficient is simply multiplied by 100.
The property of the enterprise consists of current and non-current assets. For the calculation, it is necessary to take into account their total number. This will require the data of the accounting report. The calculation involves the data of form No. 1 “Balance” and form No. 2 “Report on financial results”.
Considering the formula, how to calculate the profitability of the enterprise, you will need to present it in a simplified form. In this case, it looks like this:
RP = P / A * 100, where RP is the profitability of the enterprise, P is the balance sheet profit, A is the assets.
To get all the data for the calculation, you must refer to the financial statements. The amount of retained earnings 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 retained earnings is indicated in form No. 2 on line 2300. This indicator is called “Profit before tax”.
The value of assets is presented in the form of No. 1. This is the sum of current, non-current funds. It is presented in the final line 1600 of the balance sheet of the enterprise.
Calculation Example
Calculating profit and profitability is quite simple. However, it is much more difficult to draw the right conclusions about the state of affairs in the workplace. One indicator calculated in a specific period of time does not reveal information on development trends. This is simply a statement of the fact whether the enterprise worked profitably in the study period or not.
To make the right conclusions, profitability indicators are calculated in dynamics. They are also compared with the coefficients of other industry enterprises. To properly evaluate the result, you need to consider an example of calculation.
So, in the previous period, the company received a net profit of 343 million rubles. The costs amounted to 900 million rubles. In the reporting period, slightly different data were reflected in the financial statements. Over the year, the company increased its net profit. Its size amounted to 550 million rubles. At the same time, costs increased. They amounted to 2300 million rubles in the reporting period.
Next, you need to perform the calculation. In the previous period, the profitability of the enterprise was as follows:
RP = 343/900 * 100 = 38.11%.
In the reporting period, profitability amounted to:
RP = 550/2300 * 100 = 23.91%.
It can be concluded that even though net profit before taxation of the company increased over the year, costs also increased. Therefore, the profitability of the enterprise decreased in the reporting period by 14.2%, compared with the previous period. This is a negative trend. The company should review its list of costs. Enterprise funds began to be used less efficiently. Knowing how to calculate the level of profitability, you need to compare it with previous periods, as well as the performance of competing companies.
Production profitability
To draw conclusions about the work of the enterprise, it is also necessary to consider the methodology for calculating 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 indicator of profitability of the enterprise. Problems that exist in this area of the company should be resolved as quickly as possible.
If the profitability of production has declined in dynamics, it is necessary to carry out measures to eliminate such negative trends. For 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 similar products. The indicator of total cost is also calculated. Determining the profitability of each area of production allows you to highlight the most profitable or unprofitable production. Next, decisions are made on the financing of each of them. The company should pay attention to strategic areas of production.
Unprofitable production, whose products are not in demand, should be closed. In some cases, a revision of the sales system is required. Sometimes unprofitable production can be promising. It is necessary to develop plans for the effective promotion of such products in the market.
Indicator calculation
You should consider in detail how to calculate the profitability of products. This will also require accounting data.
First you need to determine the indicator of accounting profit. For this, the average annual amount of fixed assets is calculated. These are tangible assets that are subject to depreciation. To create the appropriate fund, the amount of deductions for the reporting period is charged to the cost. Depreciation is charged against funds received from customers in the sale of products.
To calculate fixed assets for the year, you need to perform a simple calculation. First, the value of fixed assets is added at the beginning of each month. Next, you need to add the amount of tangible assets at the beginning and end of the year. The result is divided by 2. This indicator is presented in the form No. 1 in line 1150.
The calculation of profitability of products is calculated as follows:
Rpr = P / (PF + OS) * 100, where PF - the average annual value of fixed assets, OS - the average annual value of working capital (line 1200 of form No. 1).
It is necessary to calculate the profitability for the year, and then consider the result in dynamics. Production activity is the main factor that affects the performance indicator of a company. Therefore, it must be considered during the analysis.
Return on assets
Studying how to calculate the profitability of the enterprise, you need 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 effectively. Even if at the moment the company makes a profit, its size could be higher. Over time, if management does not take the necessary measures to increase it, various adverse trends will be determined. Profits will gradually decline.
However, it is worth noting that a too high rate of return on assets also cannot be considered a positive feature of the activity. This suggests that the company does not have enough reserves. In an unstable situation, she will not be able to timely settle her obligations. 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. You will need to consider the data of financial statements. Sales revenue can be determined by actual shipments of products or payment by customers. It depends on the chosen organization policy. From it deduct the cost, operating and fixed costs. The amount of tax 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.
Further, in order to calculate the financial return on equity of an organization, you will need to turn 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 income is divided into assets. The corresponding result is obtained.
Current assets
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 have been identified in this direction, the capital structure requires correction. 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, financial stability, etc.).
How to calculate the profitability of working capital? For this, a simple formula is used:
ROA = PE / OA * 100, where PE is net profit (line 2400 of form No. 2), OA is the average value of current assets for the year (line 1200 of form No. 1).
The higher the presented indicator, the more efficiently are working assets used. A decrease in the indicator in dynamics is a negative trend.
Fixed assets
To calculate the profit, profitability of the enterprise, you 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 / OS * 100, where OS is the average annual value of fixed assets (line 1150 of form No. 1).
This indicator is considered in dynamics. If negative trends are observed here, measures are being developed to increase the efficiency of 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 implementation that allows you to reach the breakeven point. In this case, revenues are equal to expenses. The calculation is as follows:
PR = PZ / KVM, where PR is the profitability threshold, PP is fixed costs, KVM = gross margin ratio.
The KVM indicator is calculated simply. It is necessary to subtract variable costs from sales revenue. The result obtained is divided by the total revenue from sales.
Having examined the methodology, how to calculate the profitability of the enterprise, as well as the main indicators of the effectiveness 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.