Each financial manager must evaluate the performance of the enterprise. This will help to draw conclusions not only about the effectiveness of his work, but also about the effectiveness of the firm, which will come in handy when making subsequent management decisions. Perhaps one of the most convenient and simple ways to measure effectiveness is to calculate and analyze profitability indicators. Due to the fact that the company is characterized by a huge number of parameters, these indicators are also quite a lot: return on assets, return on sales and, probably, a couple of dozen.
If we open the balance sheet, then in the first section we will see non-current assets. As a rule, in this section, most of the assets are fixed assets, that is, property that serves the firm for a long time. The remaining articles in this section are also important, and therefore the measurement of the efficiency of use of this property is important. The profitability of non-current assets will help us in this. This indicator is calculated similarly to all other profitability indicators: it is necessary to compose a fraction, in the numerator of which there will be profit, and in the denominator - the value of non-current assets.
The simplest and most often used calculation is based on the net profit indicator. As you know, this indicator is presented in the income statement. The peculiarity of this reporting form, and therefore of all indicators, is that the information there is cumulative in nature, that is, values for a certain period are presented. This fact is not very consistent with the fact that the denominator contains the value of assets given on a specific date. Such a discrepancy can lead to some errors in the calculations, which can be very significant. In order to most accurately determine the profitability of non-current assets, it is required to establish their average value for the period, and it is precisely to use it in the calculations. If there is no information to determine the average value, then you can use the value of these assets at the end of the period, but the accuracy of this calculation will again be lower.
Now it's time to talk about the economic meaning of this indicator. The profitability of non-current assets shows how much profit each ruble brings their value. In other words, this indicator allows you to evaluate the efficiency of use of the property that the company expects to operate for a sufficiently long period.
It is obvious that in addition to non-current assets, the balance also contains current assets. Their profitability can also be easily determined, and the difficulties in calculating it are similar to those that we have already considered. After calculating the profitability of each part of the assets separately, it makes sense to determine the overall profitability of all the property of the company, that is, the efficiency of its use.
As for the analysis of these indicators, the most often resort to the use of the method of comparisons. Comparisons can be made with values from previous periods to identify trends. In addition, profitability indicators of one company are often compared with similar indicators of competitors or just similar enterprises, as well as with industry average levels. It should be noted that for the analysis of this group of indicators normative comparisons are not applied because the norms for them are not established.
By elementary transformations of the calculation formula, that is, the mathematical model, it is possible to determine those factors that affect a certain indicator of profitability. After that, the individual effect of each factor should be calculated. This procedure is called factor analysis and it can be subjected to both the profitability of non-current assets, and circulating, and all together.