Each organization in a market economy works for profit. This is the main goal and indicator of the effectiveness of the use of available resources by the company. There are certain features of the formation of profit, as well as its distribution. The further functioning of the company depends on the correctness, validity of this process. How is the formation of enterprise profits and distribution of profits, will be discussed later.
General definition
Considering the economic content, formation and distribution of profits of enterprises, you should understand the essence of such a thing as a financial result. Its determination occurs according to the established methodology. The result of the organization is income and profits from the main, investment and financial activities. On its basis, an assessment of the effectiveness of the enterprise in the period under review takes place. The indicator is considered in dynamics, which allows to determine the changes and factors that influenced it.
The starting point for the calculations is the amount of revenue from product sales. You also need to consider the income from transactions outside the sale of the main products.
Profit is the resulting measure. It is defined as the difference between income and resources expended. If the result of such an action is positive, this indicates effective management, organization of the production process at the proper level. If the calculation result is negative, we can say that the company was unprofitable in the reporting period. In this case, you need to look for ways to eliminate the negative impacts on the organization.
In the study of the economic content, formation and distribution of profits of enterprises, it should be noted that the calculation takes into account the totality of funds for sales at the market price. But at the same time excise tax and VAT are not taken into account here. The cost is taken from the amount received. This is the cost incurred in the production process.
There are three main types of profit:
- from sales;
- non-operating;
- from the sale of other values.
There are many factors that affect profit. This may be sales volume, structure and cost of production, market price of products. Indirectly, this indicator is affected by the quality of finished goods, the situation in the industry, inflation, etc.
Profit analysis
There are certain principles for the formation and distribution of enterprise profits. In the management process, the correctness of the organization of the production process, the financial sector of the company is controlled. The structure of the financial result is estimated, the factors that influenced it are determined. Analysts determine the amount of profit from the sale of finished products and procurement, from investment and financial activities.
This indicator is used in the calculation of a number of factors:
- profitability;
- change in net profit;
- study of operational costs;
- asset management efficiency;
- debt service;
- liquidity;
- performance;
- material consumption;
- market indicators;
- other things.
Analysis of the processes of formation and distribution of profits of an industrial enterprise is interesting not only to managers and owners of the company, but also to investors and creditors. Therefore, such an important indicator and the structure of its formation is determined with a certain periodicity.
Profit is the value of surplus goods. At the time of implementation of a given value, income is obtained. This indicator is an indicator of the success of the organization in its industry. Profits can be made by an enterprise at various levels. Depending on this, it can be gross, before tax, from sales or net.
Profit Functions
There are different types of enterprise profits. The formation, distribution and use of them occurs according to a certain technique. Financial results are involved in the management of the company. In the process of planning and developing a strategy, a search for reserves and ways to increase profits occurs. The company seeks to work in the reporting period not only without loss, but also to get the maximum income.
Considering the principles of formation and distribution of enterprise profits, you need to understand its functions:
- Estimated. Profit can be presented in absolute or relative terms. Their analysis allows us to determine whether the main, investment, financial activities of the company are effective, whether management decisions are appropriate in the current period, and what are the company's prospects. In this case, you can consider the influence of all factors on the final result of the enterprise. It is estimated how material, labor, money or other resources were spent.
- Stimulating. The amount of profit is an indicative value that demonstrates the interest of all employees in obtaining the required financial result. The income level reflects the satisfaction of employees with the activity in which they are engaged. According to the profit indicator, it is possible to determine whether there is a sufficient level of wages in production, whether the motivation system is correctly built. It is the mechanism of distribution of the financial result that allows to stimulate one or another sphere of development. Perhaps, in the circumstances, it is necessary to raise the salary of workers or to develop innovative technologies. In some cases, it is more advisable to renew fixed assets or pay high dividends to shareholders, thereby increasing the value of the company in the market. Profit is a stimulating factor of development in the chosen direction.
Analysis of the process of formation, distribution, use of enterprise profits is extremely important. The fact is that the market value of the company directly depends on this indicator. This affects the welfare of the organization, obtaining competitive advantages within its industry. When identifying factors adversely affecting the size of profit, methods for their elimination are developed. Therefore, financial results are constantly analyzed. This work is carried out at regular intervals.
How profit is calculated
The mechanism for the formation and distribution of enterprise profits is stipulated by law. This is necessary to standardize the display of financial results of the company. Their activities are becoming more transparent, easier for third-party users to understand and evaluate information. Income is the sum of all funds received by the company for the reporting period in the course of its activities. It has a certain structure.
The best way to understand the principle of calculating net profit allows accounting. The company generates a report on financial results, which is also called form No. 2. Formation and distribution of the company's profits begins with the preparation of this document.
According to this technique, several intermediate income values are first determined. First, the total amount of revenue from product sales is calculated. To do this, take into account the posting data reflected in the accounts at the end of the reporting period. The cost of production is subtracted from the result. For the calculation, they take the proceeds from which the amount of excise taxes and VAT have already been taken. The result is called gross profit or loss.
Selling expenses, as well as administrative costs, are taken from the result. The result obtained is called the profit (loss) from sales.
In the course of calculations, a few more steps are required. To profit from sales add income received from participation in other companies. It can also be interest receivable, other income. Further, the interest paid by the company and other expenses are taken away. The result is called pre-tax profit. The amount of the relevant payments is deducted from it.
After carrying out the above manipulations, the net profit of the enterprise is obtained. This is the final result of the company’s activities in the reporting period. After its formation and calculation, a distribution procedure occurs. But this is only possible if the company made a profit, not a loss.
Sources of information for generating a report
Considering the principles of formation and distribution of enterprise profits, it is worth mentioning briefly about the sources of information for determining the financial result. In the course of accounting, a number of standardized procedures are carried out.
All data that are used in the preparation of the report are reflected in the accounts. They are generalized to calculate the amount of income and profit. Information is taken from the following accounts:
- "Sales" (account 90). It reflects information on the amount of income and expenses that have been reduced to a single indicator. This allows you to determine the amount received at the end of the reporting period in the field of implementation. It reflects information on the cost of production, on purchased equipment, materials and goods. It also reflects communication services, transportation, participation in the authorized capital of other enterprises.
- “Other costs and income” (account 91). Information about other income and expenses that occurred in the reporting period is reflected here.
- “Shortcomings, costs arising from damage to goods and materials” (Account 94). These are financial losses, which are determined in the course of damage to material values. Such costs can arise both in the process of manufacturing products, and during storage, sale, transportation of products. If the damage was caused as a result of a natural disaster, it shall be reflected in 99 accounts. When calculating the cost, this amount is not taken into account.
- “Reserves for future periods” (account 96). This is the amount of funds that were reserved in the reporting period, but will fully transfer their value to the result only in the future. These are reserves that may relate to the production or sale of products, for example, the costs of repairing or servicing equipment, paying premiums, calculating vacation pay, and other similar expenses.
- “Deferred expenses” (account 97). These costs occurred in the reporting period, but will be fully reflected only in the future. This, for example, may be the cost of preparatory work during the main production, equipment repair, environmental protection, etc.
- “Profit of future periods” (account 98). This is the sum of all profits that are received in the reporting period, but will finally transfer their value in the future.
Report generation
According to the results of the company’s activities for the year (six months or a quarter), the formation and distribution of the company's profits takes place. The items of income and expenses of form 2 reflect all the necessary information that is used in the analysis. Filling out the report on financial results is carried out according to the established methodology.
Line 2110 records the final result of the main activity of the enterprise. This is the amount of income from the sale of finished products.
Management costs are reflected in line 2220. This is the remuneration of management. This item includes the amount of relevant taxes, as well as other accruals.
Other income and expenses
Line 2310 indicates the profit from participation in the activities of other organizations. This is the sum of interest, dividends and other similar payments. If the company received income from other investment activities in the reporting period, they are displayed in line 2320 of form No. 2.
Other types of profit that are not included in the above columns of the report are indicated in line 2340. These may be penalties paid in favor of the enterprise, penalties and other similar income. It can also be profit from the sale of property, exchange rate differences and other income.
Considering the model of formation and distribution of enterprise profits, it is worth noting some features of cost accounting. Thus, interest costs are reflected in article 2330. Other expenses must be reflected in article 2350.
General principle of profit distribution
Studying the process of formation and distribution of enterprise profits, it is worth noting several features. The procedure for displaying financial results is regulated at the legislative level. But here the process of profit distribution is stipulated in the charter of the company. This procedure is also governed by the relevant provisions that economic services are developing.
Profit is subject to distribution only after payment of all necessary taxes. Also, some financial sanctions may be deducted from this amount. The funds received are used to develop the organization, stimulate investment attractiveness and other areas of industrial and social development.
The state does not directly interfere in the distribution processes. But by providing tax incentives, it reserves the right to finance certain necessary areas of development from the net profit of the enterprise. The formation and distribution of profits is subject to the norms of legislation in the field of formation of reserve capital.
Dividends
The owners of the enterprise are interested in obtaining their share from participation in the capital in the event that the net profit of the enterprise is formed in the reporting period. The formation and distribution of profits has certain nuances for enterprises of various forms of ownership. So, according to the results of the company’s activities, owners can receive a certain financial reward. This may be dividends on shares, deductions in accordance with equity participation in the authorized capital of the organization.
The decision on the payment of dividends is taken at the general meeting. If the owners own ordinary shares, even if they receive a net retained earnings, they may not receive payments. The decision is made by voting at a meeting of shareholders. In some cases, it is more advisable to direct all profits to the development of production in order to receive dividends several times higher in the future than at the moment.
The amount allocated for consumption is distributed according to equity participation. The market value depends on what dividends the company pays. Therefore, this procedure is treated very responsibly.
Activity financing
The development of production is financed by the net profit of the enterprise. The formation and distribution of profits is the most important factor in stimulating this process. Dividends are paid from the amount received, and then the corresponding funds are filled from the remaining funds.
First of all, a reserve is created. This is an amount that increases the financial stability of the company. But its size cannot be too large, since capital must work and be profitable. The remaining funds are used for equipment modernization, staff training, the acquisition of new production lines and technologies, innovative developments, etc.