The effect of the activities of any enterprise is characterized by profit or loss. Profit, obviously, is an absolute indicator, and its relative value is determined using profitability indicators. It is difficult to draw any conclusions only on banal calculated indicators; therefore, it is advisable to analyze the profit and profitability of the company.
There are many methods of analysis, but we will consider only a few. The first of these will be a horizontal analysis of profit and profitability. It consists in the study of changes in these indicators within one enterprise over time. In other words, using indicators for several periods, you can determine their absolute and relative changes, which will reveal the main trends in the dynamics of both profit and profitability. As for profit, the horizontal analysis can be carried out not only on one indicator, but on the profit and loss statement as a whole. In this case, it is possible to evaluate not only how the profit itself changed, but also those factors that affect it.
In addition, it should be noted that the report mentioned above can be subjected to vertical analysis, that is, structure analysis. With it, it will be possible to trace the change in the share in revenue and profit, and cost, and taxes, as well as other factors that influence the formation of profit.
Speaking of factors. The analysis of profit and profitability of the organization, called factor, is an extremely popular method, since it allows you to identify, for example, the main problems that cause a decrease in profit. This type of profit analysis is convenient to carry out, also based on the income statement. The fact is that it reflects the process of profit formation and makes it easy to build a mathematical model that can be easily analyzed. In this case, we should study in more detail the effect of revenue on profit, since it, in turn, also depends on two factors - price and sales. Their influence should be reflected separately.
It is customary to associate factor analysis with respect to profitability ratios with DuPont formulas, which, using the absolute difference method, make it possible to identify the influence of factors on the profitability of assets (property) and equity. Before applying this technique, it is useful to slightly transform the mathematical models of these types of profitability in order to identify factors whose influence will be evaluated. Simple transformations allow us to conclude that the profitability of assets depends on their turnover and profitability of sales, and the efficiency of using equity capital is also affected by the coefficient of financial dependence.
This type of analysis can be subjected to any indicator of profit and profitability, nothing will stop you, for example, to make the necessary calculations and carry out a factor analysis of staff profitability . Just in this case, you will have to transform the mathematical model yourself to take into account factors, as well as do without using predefined formulas. Of course, this type of analysis will also require information for several periods, at least two.
The described techniques traditionally comprise an analysis of the profit and profitability of enterprises in the real economy. However, with certain transformations, you can also do a profitability analysis of a bank or other financial institution. In this case, the difference will not even be so much in the methods of analysis, since they are still quite general, namely in the structure of those indicators that you will analyze.