Everyone has heard words such as profitability and profit at least once. However, if many people have the idea that such a profit , then the word profitability is much more complicated. Profitability of production is the most effective indicator that can determine the economic picture of the enterprise. Using this indicator, you can not only navigate in determining the state of the enterprise, but also analyze its economic feasibility.
This indicator is able to determine both the effectiveness of the entire enterprise as a whole, and the effectiveness of its individual areas of production. For example, for a large agricultural enterprise, they calculate not only the overall profitability indicator, but also the profitability of milk, meat, crop production and any other areas of its activity.
The profitability indicator is convenient for characterizing financial results and analyzing the effectiveness of any commercial enterprise. The term profitability comes from the word "Rent", which in translation means income. The overall profitability of production is an indicator of profitability, profitability and financial efficiency of the enterprise.
It is very convenient because it allows you to show a visual assessment when comparing individual industries, enterprises and industries, characterized by different directions and different volumes of products. The profitability indicator itself characterizes the ratio of the enterprise’s profit to the volume of resources spent on the production of the entire volume of output.
In an economic analysis, the most common indicators are product profitability and production profitability. The basis for calculating profitability is profit, which is not just an important economic indicator, but the ultimate goal of any commercial enterprise. Profit is the very indicator that characterizes the success and effectiveness of any enterprise.
Profit occurs when the expenses of the enterprise do not exceed its income. If, as a result of economic activity, it turns out that the expenses of the enterprise exceed revenues, then its effectiveness is considered negative, in other words, the company receives a loss. When the profit grows as a result of economic activity , the economic opportunities of the enterprise grow accordingly and its business activity increases .
Also, the profit received as a result of the activity of the enterprise determines the share of income of its owners, founders, shareholders. It is profit that is used not only to calculate the profitability of production, but also to calculate the profitability indicators of own fixed and circulating assets, borrowed resources, as well as all advanced capital. With its help, you can determine the profitability of each share of the joint-stock company.
Therefore, profit is not just the goal and result of the activities of any successful organization, but also the most important economic category. Profit and profitability of production are not only estimated indicators, but also perform the most important functions:
-accounting, since it is profit and profitability that are the final indicators that allow to determine the effectiveness of all industrial and economic activities;
- stimulating, as they provide more opportunities for economic development and expansion of production;
-budget-forming, since profit is not only a source of development of production and the enterprise, but also a real source for replenishing the country's budget.