Any enterprise must be evaluated from various points of view and for various purposes: for making certain management decisions, determining the degree of investment attractiveness, and the like. One of the parties, the assessment of which is mandatory, is the effectiveness of the activity. To this end, an analysis of the profitability and profitability of the enterprise.
The profitability of the enterprise is, which is obvious from the name itself, its ability to make a profit. The concept of profitability of the enterprise, in turn, characterizes a specific level of profitability. It is clear that the fact of profitability itself does not make it possible to accurately assess effectiveness, therefore, for making decisions, the profitability of the enterprise is calculated.
Any profitability indicators are calculated using the same methodology, undergoing only small changes. These indicators are relative, therefore, they are defined as a ratio. The formula of each of them is a fraction, in the numerator of which there is profit, and in the denominator - that indicator, the profitability of which is being studied. It is worth noting that the calculation of the profitability of the enterprise can be made in the coefficients, but most often the result of the calculations is increased by a hundred times, getting the result in percent.
Perhaps it’s worthwhile to dwell on what profitability indicators are calculated most often. Obviously, the necessary information is taken from the forms of financial statements. Profit is present in the calculation of all indicators, so first we consider those that can only be determined by the profit and loss statement. Of greatest interest in this case will be the profitability of sales and products. The first indicator is determined by the ratio of profit to revenue. Obviously, it characterizes the share of profit in this same revenue. As for the profitability of products, the cost is in the denominator of this indicator. The meaning of his calculation is to determine the amount of profit that each ruble brings the costs of production.
The calculation of the profitability of the enterprise would be incomplete without an assessment of the efficiency of use of its property. The property of the enterprise, as you know, is represented in the asset of the balance sheet. The effectiveness of the use of property is determined by calculating the profitability of assets as a whole, and for individual groups. Accordingly, to determine the level of profitability, it is necessary to divide the profit by the sum of all assets (balance sheet total) or by the value of current or non-current assets.
Considering profitability indicators, we did not stop at what indicator of profit should be used in determining them. Most often, net profit is used, since it is it that makes up the final financial result. However, in some cases, resort to the calculation on the basis of other indicators of profit. Thus, return on sales can be calculated on the basis of profit from sales, and return on assets is often calculated on profit before tax. This is due to the fact that it is necessary to choose exactly the indicator that, according to the economic sense, is most suitable for the calculated profitability ratio. In addition, one or another type of profit allows you to take into account the influence of certain factors, but not to take into account other, less significant.
Be sure to keep in mind that the calculation of the profitability of the enterprise should be supplemented by analysis. The most commonly used analysis method is comparison. The profitability of the enterprise can be considered in dynamics, comparing with the indicators of previous periods. In addition, it makes sense to make comparisons with similar indicators of other similar enterprises or with industry average values. A more sophisticated method is factor analysis. Its use allows you to evaluate the specific quantitative impact on certain indicators of profitability of individual factors and their combination.