The implementation of any project should be profitable. This is the goal for which all activities of enterprises, companies and organizations are carried out. There are several indicators on the basis of which the profitability of projects and any labor associated with commercial activities is determined . These indicators are the same for any industry. One of them is the rate of return. Consider this factor in more detail.
In the process of activity or development of the project, capital or funds are invested for their implementation. Naturally, according to the results of a certain period, it is necessary to calculate how effective these investments are. After all, the result of any project in the commercial sphere should be profit.
The rate of return is the percentage that is determined by the ratio of the profit received for a certain period to the capital that was invested in this project. Thus, they receive a measure of profit, which relates to assets or investments.
If the rate of profit is calculated in relation to the costs that were needed to obtain it, then the indicator will be called profitability. These two values are very close in meaning. The difference is only in the costs that are taken into account in the calculation.
But in any case, the rate of return is an indicator of the profitability of a production or project or the increase in cash that has been spent on production.
The costs that are taken into account in the calculation consist of the costs of production, as well as the wages paid to the workers for this period. Typically, the rate of return is calculated for one year of production or project promotion.
I must say that this indicator fully characterizes the activities of the company. It is influenced by both internal factors and the market situation. Profit earned as a result of activity is the main determining indicator. The higher the total mass of profit, the better will be the efficiency of work, and therefore the rate of profit. Therefore, an increase in this indicator indicates the profitability of a project or business.
But do not ignore another factor that is important in calculating the rate of profit. These are funds invested in the implementation of the project. Remuneration of employees may become significant in the calculation.
The rate of return also depends on several other factors. To improve it, it is necessary to increase the rate of turnover of funds that are involved in the production process. Thus, these funds will return to the production process much faster and bring more profit. The number of products or services is growing, and thereby increasing production volumes. Profit is growing and production efficiency too.
The internal rate of return is an indicator of the ratio of investments to profit received from this investment.
The profit margin can be increased by improving some performance indicators of the company or an individual project. The main one is the amount of money spent. If you spend money economically on production, you can increase the resulting profit. This is achieved by improving production methods, the use of advanced technologies and through the rational use of labor.
All this leads to a decrease in production costs, and therefore to an increase in the rate of return.
But it should be noted that this indicator also depends on some external factors. So, the market value of products plays an important role. Its formation is influenced by some macroeconomic indicators and the market situation.