Profitability, in contrast to the absolute indicator of profit, is a relative indicator of profitability of an enterprise. It reflects the state of the company, in which the proceeds from the sale of goods cover all costs of production, and its further sale. In other words, profitability shows the profitability of the enterprise.
Profitable is any enterprise that receives at least some profit. All profitability indicators that are used in calculations in the economy characterize relative profitability as a percentage for each type of resource.
There are such types of indicators as the total and net profitability of the products and the enterprise itself. Moreover, the products are considered in three versions: sold, commercial and individual products.
Profitability is calculated as the ratio of a company's profit to its costs or expenses of resources. Since the indicator is relative, all calculation results should be multiplied by 100%.
The main indicators of profitability include the total and net return on assets; sources of their formation; sales goods (products, services, works). An objective reflection of the picture can give only a complete system of these indicators.
The total profitability of current and non-current assets is defined as the ratio of profit before tax payments to the average value of all assets for a specific period. The obtained value shows how much money was attracted by the company to receive each ruble profit.
Net return on assets is defined as the ratio of net profit for a given period to the average value of assets. The result of the calculations will show how tax deductions and other payments from the resulting profit have an impact on the profitability of the enterprise.
The total profitability of the sources of formation of assets is calculated as the ratio of profit before tax to the average value of assets raised over the period. This indicator shows the efficiency with which the company manages the means at its disposal, regardless of the sources that form them.
The net profitability of sources of formation of assets is equal to the ratio of all net profit for the period of interest to all sources of formation of assets. The resulting figure shows the degree of effectiveness of the use of funds depending on the sources of their formation (borrowed, own, working capital, fixed capital).
The profitability of products (goods, works) is calculated by the ratio of profit to production costs. This value shows how effective is the production and sale of manufactured goods (services).
The overall return on sales is the result of the ratio of profit from sales before taxes to net revenue from these sales. The indicator reveals the share of retained earnings in the total income of the enterprise.
Net sales margin equals the ratio of net profit to turnover and trading income (sales revenue). The indicator reflects the pressure of tax payments on the main income of the enterprise in all areas of work. Of particular importance are these figures for shareholders and creditors of an enterprise.
Net profitability shows the degree of efficiency with which one or another resource or property of the enterprise is used.
The efficiency of the enterprise is influenced by a number of factors. Under the factors of profitability understand all such circumstances that can affect the formation of profit. They can be of an extensive nature (affect profit by changing the volume of products sold) or intense (affect profitability by lowering the cost of production or increasing sales prices).