The effectiveness of the enterprise can be determined both in absolute terms and in relative terms. The absolute indicator of efficiency, without a doubt, is profit, and its relative size can be estimated by calculating profitability indicators. To study the effectiveness of the company and the formulation of any managerial decisions, most likely, it will be insufficient to simply calculate these indicators. More significant results can be achieved if you analyze the profit and profitability of the enterprise. In this regard, it makes sense to dwell on the basic methods of analysis that may be useful.
One of the varieties of analysis is the factor analysis of profit and profitability of the enterprise. This analysis is based on the study of a model that describes the impact on profit of factors such as production volume, price and unit cost of production. In this model, indicators are related as follows: profit is defined as the product of sales (in tons, units, etc., that is, in physical units) by the difference between the price and the unit cost. If there is information for several periods or planned and actual indicators, the isolated effect of each factor on the amount of profit received is determined. In the vast majority of cases, resort to the method of chain substitutions or its modifications. As for the analysis of profitability, in this case the model is supplemented as follows: the above profit is divided by cost (product of sales volume by unit cost), and through simple transformations, we can conclude that only the price and unit cost affect profitability. Further analysis is carried out in the same way.
The above method does not take into account the heterogeneity of the cost of production, that is, the presence in its composition of a constant and variable part. To conduct a more accurate study, a marginal analysis of the profit and profitability of the enterprise is carried out. This name is due to the fact that profit in this case is determined by the difference between the commercial margin and the amount of fixed costs. In turn, the commercial margin (coverage amount) represents revenue, reduced by the amount of variable costs. To more easily be able to take into account the influence of factors, the amount of coverage is presented as the product of sales and the difference in price and variable costs determined per unit.
As you can see, the described model allows you to take into account not only a greater number of factors, but also a greater number of relationships between them. Profitability in this case is also represented through the ratio of profit to cost. How to reflect the profit, we have already figured out, and the cost is expressed as the sum of fixed costs and the product of variable costs per unit and sales volume. To both of the described models, to study the influence of factors, the method we have already mentioned is applied — chain substitutions.
However, the easiest way is to conduct a horizontal analysis of the profit and profitability of the enterprise, which implies the study of changes in indicators over time. For this, it is necessary to calculate both absolute and relative changes. The latter are most often represented as dynamics coefficients. Of particular interest is the comparison of profit growth rate and asset growth rate. If profit grows faster than assets, then we can talk about increasing efficiency, otherwise - efficiency decreases.
Of course, analysis using the methods described above is necessary. Depending on the information available or on what level of error you are willing to put up with, you have a choice between the traditional factor model and marginal analysis. In addition, it should be noted that factor analysis can be performed on the basis of the financial statements of the company, namely, the profit and loss statement. In this case, the influence of several other factors will be studied, for example, business and administrative expenses, taxes, other income and expenses.