The organization of business in a market economy is aimed at making a profit, which serves as the main indicator responsible for the efficiency of the enterprise. In fact, we are talking about profitability, which is the ratio between profit and expenses spent per unit of output. Profitability can be calculated for various business areas, for example, staff profitability, which indicates the employee’s work efficiency in relation to the resources expended on him in the form of workwear, a social package, organization of a workplace and other things.
Profitability and profitability are interconnected, since the second can serve as a means to increase the first, and indicate problems of the company. In addition, profit makes it possible to carry out various promotional events, develop a business, etc.
Profitability in retail, its total value, is determined by the ratio of the amount of profit to turnover for a certain period of time. But in this case, the profit received solely from the sale of goods is taken into account, excluding other expenses, that is, we are talking about the level of profitability of sales. European economists use the annual profit ratio to estimate it more accurately.
In world practice, profitability is a whole system of indicators that allow to characterize the financial and economic work of the enterprise. In this system, the numerator will be the balance sheet and net profit, or the profit from the sale of goods.
Profitability and profitability play an important role in the analysis of profitability of sales, where profitability is assessed for specific products or a number of products. This is necessary to more accurately determine the effectiveness of a particular area of the enterprise and determine profitability on such grounds. In the course of the analysis, goods are identified that have low, high and unprofitable competitiveness of each of the goods, which allows taking measures to increase profitability and increase the production of highly competitive goods.
The effectiveness of a business cannot be determined by what the profitability of the transaction was, by its idea or the degree of profitability. For these purposes, use such an indicator as the level of profitability. In this case, profitability is a combination of two concepts:
- profitability as a qualitatively quantitative indicator,
- profitability - an economic category.
The level of profitability is important not only for management, but also for employees. For them, this is an indicator of stability and confidence in the future. That is why it is advisable to pay additional bonuses and awards for employees. This in turn stimulates positive motivation for further work.
Equally important indicator for management, especially joint stock. In this case, this is the profitability of the transaction (that is, money contributed to the development of the enterprise from one owner) for each shareholder or owner, since for them the ratio is a guarantee of the correctness of financial investments. The profitability of the transaction implies not only receiving good dividends, which is beneficial for the owners, but also for the management, which wants to coordinate the introduction of new financial costs for the purchase of equipment, creation of new jobs and so on.
One of the very important areas of the enterprise is determining the profitability of staff. According to statistical estimates, only 20% of workers make the main profit, while all other participants in the process, although they perform their functions, are less important. It is from this peripheral link that you need to get rid of in a crisis. In the General case, the profitability of staff should include an assessment of the effectiveness of the employee in relation to the cost of its maintenance.
To summarize, we can confidently say that profitability is an extremely important indicator responsible for the effectiveness of individual elements of a business.