Quite often, when analyzing the performance of any enterprise, an indicator such as “operating profit” is used. In this article, we will consider this indicator in more detail, as well as the procedure for calculating it. Operating profit is an important economic indicator equal to the amount of profit earned by an enterprise before taxes and possible interest on loans. Operating profit is calculated on the basis of the data that are reflected in the financial statements of the company and serves as an indicator of the investment attractiveness of any company, since it allows you to evaluate the profitability of the core business of the company, that is, profit from manufacturing products (performing any work or providing services). The formula for calculating this indicator can be represented as follows:
OP = PE + RNP - GNP + CR - BH + UP - PP, where
OP - the amount of operating profit;
PE - the amount of net profit;
RNP - various expenses related to the payment of income tax;
GNP - reimbursed income tax ;
CR - extraordinary expenses;
BH - extraordinary income;
UP - interest paid;
Mon - interest received.
The amount of profit or loss from operating activities is calculated in several stages.
At the first stage, the net operating profit from the sale of goods is calculated by adjusting the income from the sale by the amount of indirect taxes and other deductions from profit.
At the second stage, the cost of goods sold is deducted from the previously obtained result. The result is gross profit or loss from the sale of goods.
At the third stage, gross profit is adjusted (increased or decreased) by the amount of other operating profit or losses that are received from the sale of other current assets (excluding financial investments), foreign exchange differences, asset leases, interest, fines, etc.
In the fourth stage, operating profit (or loss) is calculated as the difference between the result obtained in the third stage and the sum of administrative costs and distribution costs.
The formation of income from core activities depends on the influence of various external and internal factors. External factors do not depend on the work of the company, but, nevertheless, have a significant impact on the amount of income, and therefore they should always be taken into account. These include:
- current market conditions;
- price level for raw materials used by the enterprise;
- depreciation rates ;
- natural conditions;
- state regulation of tariffs, prices, interest rates, penalties, taxes and fees, etc.
- political situation in the country, etc.
But the firm can and should influence the internal factors if it wants to increase its income. The most important of them are:
- level of management;
- the degree of competence of managers and management;
- product competitiveness;
- organization of production, labor, etc.
- the effectiveness of the preparation and analysis of production and financial plans;
- labor productivity.
Internal factors are production, which are directly related to the manufacture of goods, and non-production related to the supply, marketing, social conditions of life and work, environmental protection , etc.
Production factors, in turn, are divided into extensive (quantitative) and intensive (qualitative). It is necessary to use both of these species, but the emphasis is better on intensive factors, since they have much less restrictions and bring more and lasting effect in the long term.
The main ways to increase operating profit are to increase production volumes, reduce the cost of goods, a reasonable assortment policy, and improve the quality of products.