Profit functions characterize the economic effect of the enterprise, the stimulating effect on its development, the budgetary forming side of its activities. In order to understand this economic category, you need to understand what constitutes profit. The concept of profit reflects the received net income, which is created in the sphere of material production in the form of cash accumulations. It can be viewed from completely different angles. Profit acts as an economic category, a form of cash accumulation, a result of economic activity, a source of financing for development, a selection criterion for investment projects and optimization of current costs.
The functions of the profit of the enterprise directly depend on the above features. The profit received by the enterprise reflects the economic effect obtained in the course of economic and financial activities. These profit functions are characterized by the excess of income over expenses of the enterprise aimed at the implementation of its activities.
Unfortunately, with the help of this indicator it is not always possible to evaluate all aspects of economic activity. That is why the analysis of financial and economic activity is carried out using a whole system of economic indicators. The economic essence of profit is that it reflects the final financial result.
The stimulating functions of profit are associated with the fact that it is not only the final result, but also the main element in the formation of financial resources. Any enterprise is interested in its maximum size, since the remaining net profit at its disposal should cover the needs for financing production activities, social and technical development of the enterprise, and the creation of a material incentive fund. The stimulating function is also manifested in the fact that dividends are paid from the profits to the owners and shareholders of the enterprise.
The budget-forming functions of profit are no less important, since this is one of the sources of formation of different levels of budgets. Budgets receive it in the form of taxes and use the funds received to finance the needs of society; state production, investment, social and scientific-technical programs; ensuring state functions. Profit on the scale of society is a factor in the social and economic development of the entire state.
There are such types of profit:
1. Gross - the difference between the income from the sale of products without VAT, excise taxes, other taxes, fees and the cost of this product. It is a common indicator of effectiveness.
2. From sales - this is gross profit reduced by the sum of administrative and commercial expenses. It characterizes the effectiveness of activities associated with the main production.
3. Accounting (before tax) - profit from sales increased by the amount of other income.
4. Net is the profit before tax, reduced by the amount of tax liabilities for the reporting period.
5. Retained - the amount of net profit reduced by the amount of distributed profit. Separation of various types is carried out on the basis of different interests of persons who manage the work of the organization and control it. For example, the owners of the enterprise consider net profit as the main indicator, and the state determines the pre-tax profit as the main financial indicator.
The most important business process is the distribution and use of profits. Legislatively this process is regulated in that part which is intended for deduction to the budget. The determination of ways of spending the profit at the disposal of the enterprise is made according to the internal regulations of the organization.
Net profit can be directed to the formation of reserve capital (fund), payment of dividends, repayment of previous losses, other payments (financing of investments, solving social problems, material incentives for employees).