The purpose of creating any company is to make a profit, it is indisputable. But profit is an indicator not only to a large extent conditional, but also absolute. In other words, based only on the amount of profit received, it is impossible to compare different enterprises with each other. It is more correct to make comparisons in terms of relative indicators. In the field of studying profit and profitability, the most popular relative indicators belong to the class of profitability indicators. They are represented by a very wide range of values, but we will dwell on how to determine the return on equity ratio, as well as assets and core activities.
In order to produce products or services, the company incurs costs, thereby forming the cost. By the ratio of profit to a given value of the cost, we determine the profitability of the core business. This coefficient shows how much each ruble invested in costs allows to make a profit.
A prerequisite for the existence of the company is the presence of the owner, so it is advisable to calculate the effectiveness of the enterprise from his point of view. Typically, this is calculated the coefficient of return on equity. Its calculation is very clear and consists in dividing net profit by the amount of equity, which can easily be found in the liability of the company balance sheet. Using this indicator, you can judge the amount of profit attributable to each unit of capital of the owner. Very often, the return on equity ratio is subjected to a separate analysis, which we dwell on below.
Any labor process is characterized by the availability of objects and means of labor. They represent the property that forms the asset balance sheet of the enterprise. In this regard, it makes sense to calculate the return on assets. Obviously, for this it is enough to divide the profit into the balance sheet total. Most often, the calculation is based on net profit, but sometimes profit is also applied that has not yet been cleared of taxes.
When studying this group of indicators, they often conduct a special analysis of the return on equity, as well as assets, which is called factorial. The profitability of assets most directly depends on their turnover and profitability of sales, the quality of use of equity is also dependent on the coefficient of financial dependence. You may be wondering why exactly these factors? In fact, everything is extremely simple. Consider the return on assets, presented in the form of a ratio of net profit and the amount of assets. Multiplying the numerator of the fraction and its denominator by the revenue received by the company, and then making small transformations, we get the product of asset turnover indicators and return on sales. The return on equity ratio will have to be multiplied by assets and divided by them.
After determining the factors, it is necessary to calculate their values for a number of years, and then determine how each of them changed in absolute value from period to period. At the last stage, using the method of absolute differences , the isolated influence of each factor is determined, and when added together, we get a change in the resulting indicator for the entire period.
The study of all indicators of profitability makes sense not only from the position of identifying the influence of factors on them, but also from the point of view of their change in dynamics. Obviously, the presence of positive dynamics is a positive phenomenon. However, even the presence of positive dynamics does not always clearly characterize the enterprise. The fact is that other similar enterprises can be much more efficient, therefore it is also necessary to compare the profitability of the company with industry average values.