The company's production assets determine its value, power, market position and ability to accumulate income. Asset efficiency management pays particular attention. With irrational exploitation, the asset loses its usefulness. Economists determine the economic effect by indicators of profitability of fixed assets.
The essence of the terms
Profitability is often confused with profitability. These are close in meaning, but different in meaning terms. In a broad sense, profitability is the excess of profit over cost. If less money is invested than received, then the investment is beneficial. Here you can draw an analogy with a deposit. A person transfers funds to the bank for temporary use, and then receives them with interest. In the case of investments in business, we are also talking about “bonuses” that can be extracted from initially invested funds in fixed assets. Therefore, the coefficient is expressed as a percentage.
Profitability shows absolute value, and profitability shows potential. If a company made a profit of 10 million and a profitability of 15%, then this is a less efficient business compared to a company that made a profit of 2 million with a profitability of 80%.
OS
The main funds (funds) include: buildings, structures, machinery, equipment, long-term equipment, etc.
Signs of PF:
- multiple use;
- long form preservation;
- wear and tear;
- transfer of value to products;
- service life - more than 12 months;
- cost - more than 100 minimum salaries.
Return on assets shows the ratio of absolute values - what proportion of the invested funds is profit. Next, we give its formula.
Profitability of fixed assets = Profit / Cost of fixed assets
For the purpose of a deeper analysis, those elements that are directly involved in the production are distinguished from the number of equipment. Many large objects, for example, service cars or departmental gardens, do not bring profits, but need constant care (maintenance costs). Economists are primarily interested in the efficient use of the assets involved in production. To calculate this indicator, approximately the same formula is used. However, only the value of production assets is put in the denominator:
Profitability of fixed assets = Profit / Cost PF
What show?
These coefficients are calculated in order to determine the efficiency of using the OS. Low profitability is a signal for taking managerial measures. The sharp changes in values indicate an unstable strategy and the availability of potential for improving the position of the company.
Investors need these ratios to determine the profit received from each invested ruble. Profitability reflects the return on investing in an object. If the value gradually decreases, then inefficiently used equipment should be abandoned. The values of indicators in dynamics make it possible to identify problem areas that need optimization, unprofitable assets and reserves for the growth of labor productivity.
Clients and lenders evaluate the success of the organization by profitability.
Other indicators
By purchasing equipment, the organization additionally spends money on its delivery, installation. Already at this stage, the owner expects to receive a useful effect from its use. Such a purchase is carried out according to the results of calculations of qualitative performance indicators. These include, in addition to the profitability of fixed assets, capital productivity and capital intensity. Let's consider them in more detail.
Return on assets is the ratio of the amount of issued product to the value of fixed assets:
FD = Issue / Residual Value
The denominator of the fraction is the average annual balance value.
Example: an enterprise acquired an automated line for $ 10 million. In a year, it produces 5 thousand cars using this equipment.
FD = 5,000 / 10,000,000 = 0,0005, that is, every dollar "creates" 0,0005 cars.
Capital intensity is a return on assets.
FE = Residual value / Issue
We substitute the values from the previous task into the formula:
FE = 10,000,000 / 5,000 = 2,000.
To make a car, you need to use an OS worth $ 2,000.
Balance calculations
Typically, the coefficient is calculated according to the balance sheet for the year. Profit is taken from line 2400 or account balance 99. It is much more difficult to calculate the cost of fixed assets. This is the arithmetic mean of the values at the beginning and end of the period:
RP cf = (OSn + OSk) / 2
This formula should take into account depreciation. In addition, during the analyzed period, new funds may appear or old funds may be debited. The cost of such equipment sometimes greatly affects the final result. Therefore, it is better to use values from the balance:
Cf. 01 or cf 1050 (at the beginning and end of the year) or ledger data. This is a more accurate method that does not require additional costs:
OS = OS Start + OS Basic * (N / 12) - OS retired x (12-N) / 12, where:
BASIC and OSDisposed is the value of the OS entered and deregistered.
N is the number of months of using the equipment.
The profitability of fixed assets by balance = (p. 2400 / (OS + OSN * * (N / 12) - OS disposal x (12-N) / 12))
Tasks
It is necessary to calculate the profitability of using fixed assets with such data:
Condition 1. Net profit - 569 rubles.
The average annual cost of PF is 2 thousand 928 rubles.
P = PE / OFsr = 569/2 928 * 100 = 19.43%
Condition 2. Net profit - 250 rubles.
The cost of PF at the end of the year is 1 thousand 950 rubles.
The cost of PF at the beginning of the year is 2 thousand 150 rubles.
P = PE / ((OFn + OFk) / 2) = 250 / ((2 150+ 1 950) / 2) * 100 = 12.19%
Assessment Goal
When deciding to invest in a particular object, evaluate its effectiveness. Any investment should pay off. Otherwise, they make no sense.
Economic analysis of profitability helps the owner in solving such problems:
- make a decision on further investment of funds;
- calculate the profitability of the organization;
- adjust approaches to doing business;
- Compare the dynamics of the coefficients;
- identify the most effective and unprofitable activities;
- evaluate the quality of work of employees;
- find reserves to improve efficiency.
Deep Scan
In order to better evaluate the efficiency of equipment use, in addition to the profitability ratio of fixed assets, the following coefficients are additionally calculated:
Profitability of sales - shows the income received from each unit earned:
- Rent Prod = Net Profit / Revenue.
Return on equity reflects the efficiency of using own funds. It is used to compare the effectiveness of various companies and activities:
- Rent SK = Net Profit / Share Capital.
Return on current assets reflects the efficiency of use of the most liquid assets (cash, securities, stocks, goods):
- Rent OA = Net Profit / OA.
- The profitability of fixed assets and working capital give a complete picture of the use of property of the organization as a whole.
- Profitability of costs (products) is the ratio of profit to cost.
If the value of the indicator is positive, then the revenue exceeds the cost.
It is better to analyze various indicators in dynamics in order to identify the stages of growth and decrease in efficiency.
Example
The organization has a furniture workshop on its balance sheet. For the year the company received a net profit of 5.6 thousand rubles. The cost of fixed assets at the beginning of the year amounted to 15.8 thousand rubles. Over the same period, 2.3 thousand rubles were written off for depreciation. and purchased new equipment for 4.7 thousand rubles. The next year, the OS value was fixed at 18.2 thousand rubles. at the beginning and 19.3 thousand rubles. at the end of the year. Net profit amounted to 6.2 thousand rubles. Calculate the profitability ratios of fixed assets:
- The average cost for the first year: (15.8 - 2.3 + 4.7) = 18.2 thousand rubles.
- First-year profitability = 5.6 / 18.2 * 100 = 30.7%.
- The average cost for the second year: (18.2 + 19.3) / 2 = 18.75 thousand rubles.
- Profitability for the second year = 6.2 / 18.75 * 100 = 33%.
Due to investments in fixed assets, profitability for the second year increased by 3%. This positively characterizes the activities of the company. At the same time, an increase in efficiency indicates that:
- there is an unrealizable investment potential;
- the organization occupies a low competitive niche;
- the company has inflated prices.
It is not enough to simply calculate the indicators of profitability of fixed and current assets of the organization. It is also necessary to compare them in dynamics and with industry average values. The balances of enterprises in the form of OAO can be viewed on the website of the organizations themselves or on the website of the State Statistics Committee. These enterprises are obliged to publish their financial statements on a quarterly basis in the media, as their securities are quoted on the MMBR.
Reporting Changes
Since it is necessary to analyze the efficiency of the use of assets over a long period, it should be noted that in 2011 the form of financial statements changed. If an economist needs to calculate the coefficients for an earlier period, it must be taken into account that information on the initial and residual value for each period is entered in the balance sheet, and the accumulated depreciation amount is shown on a separate line. So it is much easier to analyze PFs.
Also, such asset items as financial investments underwent changes:
- the cost of investments is recorded separately at the beginning and end of the period;
- separately reflects the magnitude of the receipt and disposal of investments;
- exchange differences are calculated for all types of financial investments.
OS analysis
PFs are analyzed in the following sequence:
- identification of investment strategy is carried out;
- profitability indicators of fixed assets are calculated (according to the formulas above) from the balance sheet;
- analyzed the change in the coefficients in the dynamics.
To determine the strategy, you need to calculate the structure of assets in the form of fixed assets and short-term investments. You also need to identify and determine the proportion of factors in the change in book value:
DF = (Change in the value of financial investments / Change in the value of investment assets) * 100
If the change in assets occurred due to growth in fixed assets, then the organization chose the direction of investment in the development of the production base. If the growth occurred due to an increase in financial investments, then the organization is engaged in the development of a group of companies.
When analyzing PF, attention should be paid to the use of assets received / leased. In the first case, production capabilities increase, while in the second they decrease.
What else to look for?
The profitability of fixed assets indirectly characterizes the long-term goals of the owners, as it shows whether they seek to profit or intend to invest money in funds for a long period. Organizations that are at the stage of growth have an indicator of the introduction of fixed assets (the share of funds that was updated over the year) and their production potential is quite high. Enterprises that intend to leave the market have high rates of retirement and deterioration of fixed assets.
When interpreting the results, it should be noted that the value of the coefficients depends on the level of wear. If the equipment almost completely transfers its value to the finished product, then the value of the coefficients will be overstated. The objects are written off completely from the balance, and the cost of new ones should cover the needs of simple reproduction.
The level of accrued depreciation is recommended to be compared with the average annual value:
And = Depreciation / Average initial cost.
To determine how much of the assets depreciated over a period, the depreciation rate should be calculated:
CI = Accumulated Depreciation / Cost
Similarly, the deterioration of retired OS is determined:
KI = Accumulated depreciation / Write-off value
This ratio shows the timeliness of write-offs of funds. If the organization does not fully depreciate equipment, it means that it updates the OS and maintains its production potential.
The expiration rate, which shows which part of the asset has not yet been depreciated, can be calculated at the end of each period and on average for the year:
Kg = residual value / initial cost * 100
Ratio
Separately, you should calculate the profitability of fixed assets for active and passive parts. The competitiveness of the enterprise to a large extent depends on updating the production part of the equipment. From this point of view, the depreciation of all other assets does not matter. In relation to the active part of funds, the following inequality must be fulfilled:
Depreciation rate <Retirement rate <Input ratio
An increase in the retirement rate indicates an excess of the depreciation over the accrued. This leads to a decrease in the overall level of old OSs. When this ratio is fulfilled, disposal funds will not be fully amortized. The second inequality indicates the expansion of reproduction, increasing the shelf life of objects. A comprehensive assessment is given by wear factors, the limit value of which is 50%. If more than half of the value of objects is written off to the products, then the state of the funds is not good enough.