Being the final result of all activities of the enterprise, profit requires close attention. There are many reasons for this: from the correct and full payment of taxes to the adoption of the most correct management decisions. Obviously, it’s not enough just to collect information about profit for several periods, since it must be analyzed. Perhaps the most important thing is to analyze the composition and dynamics of profits, which we dwell on in more detail.
The profit of the enterprise consists of profit from the sale of products, that is, from core business, as well as from the difference in other income and expenses. Of course, you can separately study the composition of profit in the context of the main and other activities, but it is much more convenient to conduct an analysis on the basis of the profit and loss statement. The information that is presented in it is enough to conduct an analysis of the composition and dynamics of profit. To this end, this report must first be studied in two directions: vertical and horizontal. Vertical analysis is a study of the structure, since in its process the specific gravity of individual indicators is determined. Traditionally, the revenue received is selected as the base. The structure is determined over several periods, and then the changes occurring in it are studied.
The next type of analysis is horizontal. From its name it is quite obvious that a comparison of indicators over several periods is made. For this, relative and absolute changes are determined. As a relative indicator, dynamics coefficients are usually used. Using this type of analysis, the main trends inherent in the dynamics of certain indicators are determined: both profit and factors influencing it. As for the factors, the analysis of the composition and dynamics of profit in vertical and horizontal ways is usually supplemented by factor analysis.
A factor analysis of profit dynamics consists in identifying indicators that have the greatest impact on it, and a specific quantitative assessment of this effect is also carried out. To conduct factor analysis, it is necessary to draw up a mathematical model, which can describe the profit. Models can be quite diverse. Profit can be represented as the product of sales by the difference in price and unit cost. The simplicity of such a model is explained by the fact that it takes into account a small number of factors affecting profit. A more detailed model can be built on the basis of the report mentioned above, which reflects the procedure for generating net profit. When using this model, it should be taken into account that this value depends on revenue, which in turn depends on the price and volume of sales. These factors should also be considered separately. Analysis of the influence of factors in this model can be carried out by any method suitable for the analysis of deterministic models, for example, by the method of chain substitutions.
An analysis of the composition and dynamics of profit will be incomplete if it is not followed by certain conclusions. It is difficult to overestimate the importance of conclusions, since management decisions are made on their basis. An analysis may reveal a number of serious problems that need to be addressed. It may be necessary to pursue a policy of tighter cost management in order to reduce the cost of production, which negatively affects profits. In addition, pricing policy weaknesses that do not contribute to maximizing revenue can be identified. Perhaps you need to look for ways to reduce the tax burden: special tax regimes, incentives, and the like. In other words, it is necessary to pay attention to those factors that negatively affect profit, and then make decisions that contribute to the weakening of this influence. Factors that influence positively must be used to the fullest.