Product profitability. What is profitability Economics of the organization profitability

Despite the fact that profit is the most important economic indicator of an enterprise’s performance, it does not fully characterize the efficiency of its operation. To determine the efficiency of an enterprise, it is necessary to compare the results (profit) with the costs or resources that provided these results.

In the economic literature, several concepts of profitability are given. Thus, one of its definitions is as follows: profitability (from the German rentabel - profitable, profitable) is an indicator of the economic efficiency of production at enterprises, which comprehensively reflects the use of material, labor and monetary resources.

According to other authors, profitability is an indicator that represents the ratio of profit to the amount of production costs, monetary investments in organizing commercial operations, or the amount of company property. Either way, profitability is the ratio of income to the capital invested in creating that income. By relating profit to invested capital, profitability compares the level of profitability of an enterprise with alternative uses of capital or the return obtained by the enterprise under similar risk conditions. Riskier investments require higher returns to become profitable. Since capital always brings profit, to measure the level of profitability, profit, as a reward for risk, is compared with the amount of capital that was necessary to generate this profit. Profitability is an indicator that comprehensively characterizes the efficiency of an enterprise. With its help, you can evaluate the effectiveness of enterprise management, since obtaining high profits and a sufficient level of profitability largely depends on the correctness and rationality of management decisions made. Therefore, profitability can be considered as one of the criteria for management quality.

Based on the level of profitability, one can assess the long-term well-being of the enterprise, i.e. the ability of a business to earn a sufficient return on investment. For long-term creditors of investors who invest money in the equity capital of an enterprise, this indicator is a more reliable indicator than indicators of financial stability and liquidity, determined on the basis of the ratio of individual balance sheet items.

By establishing a connection between the amount of profit and the amount of invested capital, the profitability indicator can be used in the process of forecasting profit. In the forecasting process, the profit expected to be received on these investments is compared with actual and expected investments. The estimate of expected profit is based on the level of profitability for previous periods, taking into account projected changes. In addition, profitability is of great importance for making decisions in the field of investment, planning, budgeting, coordinating, evaluating and monitoring the activities of an enterprise and its results.

Thus, we can conclude that profitability indicators characterize the financial results and efficiency of the enterprise. They measure the profitability of an enterprise from various positions and are systematized in accordance with the interests of participants in the economic process.

Profitability is one of the main qualitative indicators of production efficiency, characterizing the level of return on costs and the degree of use of funds in the production process and sales of products. The following profitability indicators exist:

1. Product profitability.

It can be calculated for all products sold and for individual types. It is calculated as the ratio of profit to the costs of its production and sale. Product profitability indicators give an idea of ​​the efficiency of the enterprise's current costs and the profitability of products sold.

2. Profitability of sales (sales).

This is the ratio of profit from product sales to revenue.

3. Profitability of production.

Shows how efficiently the enterprise's property is used. It is defined as the percentage of annual profit to the average annual cost of fixed assets and the amount of working capital. It is calculated as the ratio of profit to the amount of fixed production and working capital assets.

4. Profitability of the enterprise's own funds.

It is determined by the ratio of the enterprise’s net profit to its own funds, determined from the balance sheet.

5. Profitability of long-term financial investments.

It is calculated as the ratio of the amount of income from securities and equity participation in other enterprises to the total volume of long-term financial investments.

6. Return on investment.

It is found by the ratio of the profit of the reporting year to the amount of equity capital and long-term liabilities.

7. Return on assets.

Characterizes the profit received from each ruble invested in property and is calculated as the ratio of profit to the amount of assets.

Profitability can be of the following types:

a) the overall profitability of associations and enterprises is determined by the ratio of balance sheet profit to the average annual cost of fixed production assets and standardized working capital and is calculated using the formula:

P - profit

Of – average annual cost of fixed production assets

About - average annual cost of standardized working capital

b) the actual total profitability is determined by the ratio of book profit to the actual average annual cost of production fixed assets and normalized working capital not financed by the bank. The actual balances of normalized working capital are established based on their balance sheet minus the debt to suppliers for accepted payment requests, the payment deadline for which has not come, and to suppliers for uninvoiced supplies, as well as depreciation of low-value and wear-and-tear items and a reserve for compensation of planned losses and upcoming expenses .

The level of profitability depends not only on the amount of profit, but also on the capital intensity of production. In enterprises of heavy industry associations with high capital intensity of production, the level of profitability in relation to production assets is lower than in associations of light and especially food industry enterprises. With an increase in the amount of profit and a decrease in the cost of fixed production assets and normalized working capital, profitability increases, and vice versa.

c) estimated profitability is the ratio of balance sheet profit minus payments for production assets, fixed payments, interest on a bank loan, special-purpose profit (profit from the sale of consumer goods, new household chemicals, etc.), as well as profit, received for reasons independent of the activities of the association or enterprise, to the average annual cost of fixed assets (minus fixed assets for which payment benefits are provided) and standardized working capital.

When analyzing the work of associations and enterprises, especially when planning to assess the profitability of products, profitability is important, defined as the ratio of the amount of profit to the total cost of products sold. The profitability of individual types of products is calculated using the formula:

(O – C) 100

where R is the level of profitability, %

О – enterprise wholesale price for products

C is the total cost of the product.

The profitability indicator for products reflects the efficiency of living and material labor costs for product production.

In mechanical engineering and other manufacturing industries, profitability is defined as the ratio of profit to cost minus the cost of raw materials used, fuel, energy, materials, semi-finished products and components. The following formula can be used:

where Rм is the calculated standard of profitability to cost minus material costs

F – production assets of the industry

Rf – profitability standard for production assets

C – M - cost of commercial products minus direct material costs.

The use of the indicator of standard estimated profitability in manufacturing industries is due to the high share of material costs in the cost of production of these industries, their significant fluctuations in the cost of certain types of products and the wide possibilities for technological replacement of the raw materials used.

The main ways to increase profitability are to increase production volumes and product sales; all factors related to cost reduction; introduction of scientific and technical developments; improving product quality; improving pricing; improving the production management system in a market economy based on overcoming the crisis in the financial, credit and monetary systems; increasing the efficiency of using enterprise resources based on stabilizing mutual settlements and the system of settlement and payment relations.

If you are looking for an investor for your project or have already worked quite a bit and suddenly decided to take out a loan (or again need an investor for expansion), then there is a high probability that you will be faced with the question of how to calculate the profitability of the organization you head.

Moreover, this question may not even arise from you, but from a bank or investor - and here you will have to urgently figure out what is the calculation of the profitability of an enterprise, what is the level of profitability in general, what are the profitability indicators and what does all this mean.

Let's figure it out together.

What is profitability anyway?

Profitability is an indicator of economic efficiency, expressed as a percentage. The ratio of the useful end results of the system to the amount of resources required for its operation.

Seems too nerdy?

In fact, everything is simple: something finite and useful, divided by all the resources that went into the production of this finite and useful. Of course, both indicators must be measurable and expressed in the same equivalent - usually in money.

The simplest example is return on sales (it is also called the net profit ratio or return on turnover for a specific period).

The return on sales formula looks like this:
Return on sales = (Net profit / Enterprise revenue) * 100%

This ratio clearly shows how much net profit the company has from each ruble of sales, that is, it demonstrates the company’s pricing policy, as well as how effectively it controls costs.

What is enterprise profitability?

What do those who ask you to calculate the profitability of an enterprise want to achieve from you?

This indicator will demonstrate how effectively the organization as a whole operates its assets, as well as working capital and equity. Essentially the same thing: how much profit is generated for every ruble spent.

The percentage of profitability depends on many factors: the availability and cost of assets, sources of capital of the organization, the price of working capital, the amount of revenue and expenses.

The following judgment is generally accepted: if an organization has a profit, then it is profitable. If not, then no.

But in reality everything is a little more complicated.

Calculation of profitability taking into account inflation

There is such a thing as inflation. And with the same amount of profit in different reporting periods, the indicators of the real profitability of the enterprise can differ greatly.

There are different measurement values ​​here: absolute indicators (just the profit figure for the period) and relative indicators (the ratio of profit fluctuations in relation to production costs, that is, costs and markups on raw materials and other expenses are also taken into account).

Example of profitability calculation

The company Berezovy Nanovenik LLC for two different periods (let’s say a month long) received the same profit in absolute terms - 1,000,000 rubles. It would seem great, this company has a stable profit.

However, in the first period, with a profit of 1,000,000, its revenue was 2,000,000, and in the second period it was already 3,000,000 (sales people began to give customers more discounts, one of the channels for attracting customers became more expensive, or something else that resulted in the need to increase amount of deals). Plus, the same inflation makes its own adjustments to this million.

Accordingly, in relative terms, the profitability of this company began to decline, since resources and working capital for the same amount of profit must now be spent one and a half times more. And only a relative indicator provides clarity of the real state of affairs in dynamics.

Now let’s complicate the example a little: this profit of a million in absolute figures has been observed not for two months in a row, but for six, while the turnover with the same sales plan of 1,000,000 smoothly reached the 6 million mark.

Then, in relative terms, the profitability of sales is definitely falling, that is, the company is gradually increasing costs and in order to get the same profit, something will soon have to be changed, since the management course has been clearly taken incorrectly and any force majeure can hit a company with low profitability hard.

That is why, in order to assess the real financial affairs of an enterprise, it is necessary to measure and track both of these indicators: both absolute and relative.

If we talk not about the profitability of individual business processes (for example, there are separate formulas for product profitability, personnel profitability, asset profitability, and so on), but about the organization in general, then the formula for calculating profitability looks like this:

Enterprise P = (BP / (OPF + OA))*100%
Where:
BP is the accounting profit for the reporting period;
OPF – the average value of the organization’s fixed production assets for the reporting period;
OA is the average value of current assets for the same period.

Explanation for calculations

Accounting (balance sheet) profit is the company's profit for the reporting period before taxes.

To get this figure, you need to subtract the cost of goods/services sold from revenue, subtract administrative and other expenses. Ask your accountant and have him give you the balance sheet profit before tax figure from Form No. 2, there is a whole separate line for it.

Fixed production assets (FPF) can be material or intangible. These are all the means of labor that you use to produce a product/service. These include buildings/structures, machines/machines, vehicles, tools/equipment, archives/libraries/databases, electrical networks/gas pipelines, and so on.

To obtain this figure, it is necessary to add the size of the general fund at the beginning of the period to the size of the general fund at the end of the reporting period and divide this amount by 2. In the balance sheet, the value of the general fund is listed in the line “fixed assets”.

TO current assets (OA) include material working capital (which is completely spent during the production cycle), cash (cash on hand, balance on the company's current account/accounts for the period) and funds in settlements (accounts receivable).

To obtain this figure, it is necessary to add the amount of operating assets at the end of the reporting period to the amount of current assets at the beginning of the period and divide this amount by 2.

We plug everything into the formula and find the company’s profitability.

For clarity, let's give another example.

Final example of calculating the profitability of an enterprise

The Edren-Batonych bakery turned to a potential investor for money to replenish working capital in connection with the desire to open a new workshop. The investor, of course, turned to financiers with the question “how to correctly calculate the profitability of an enterprise in order to assess the risk of non-return of the money invested in this business?”

The latter provided him with the following calculation:

The bakery earned 350,000 rubles in profit (before tax) in the first quarter.

The price of its equipment, ovens, carts, dough mixers and other things at the beginning of the period amounted to 3,000,000 rubles, and at the end of the period it amounted to 3,400,000 rubles (a delivery vehicle was purchased in the quarter).

At the beginning of the quarter, the total in the “current assets” section of the balance sheet was 600,000, and at the end of the quarter – 400,000 rubles.

The company's profitability in the first quarter was as follows:

Average general fund: (3,000,000 + 3,400,000) / 2 = 3,200,000 rubles

Average OA is obtained: (600,000 + 400,000) / 2 = 500,000 rubles

The profitability of the enterprise for the first quarter will be: 350,000 / (3,200,000 + 500,000) * 100% = 9%

“Only 9%!”, the investor wanted to be surprised at such a small amount of profitability, but then the financiers showed him that in the second quarter the profitability was 10, then 11%, while the absolute profit of the bakery either remained unchanged or tended to grow, that is, the company is confidently growing and developing, moreover, it has fixed assets and assets, which for an investor can act as an additional guarantee of investment.

It is clear that we took these numbers out of thin air and your indicators may be completely different. The main thing we wanted to do here is to show the formula by which you can calculate the profitability of an enterprise.

And from the numbers you can make independent calculations and conclusions for your company:

• if there is an increase in profitability over time, then your management of the company is commendable, the company is growing;
• if the profitability indicator decreases, then we urgently need to look for the reasons for this downward trend and correct the situation:
  • work with cost optimization,
  • increase the efficiency of sales departments and distribution channels,
  • clean up ineffective advertising costs and replace them with more effective ones,
  • fire ineffective staff, especially non-selling sales people, and so on.

We hope that the article was useful to you and your business. Subscribe to our newsletter, share us on social networks, share links with friends and partners.

We wish prosperity and development to your business.

Best regards, GK Dicaster.

The coefficient is equal to the ratio of balance sheet profit to the average annual cost of fixed production and standardized working capital. In other words, the indicator represents the amount of profit attributable to each ruble of the cost of products sold (production expenses). The initial data for the calculation is the balance sheet.

The calculation and analysis of the indicator is done by the FinEkAnalysis program in the Analysis and assessment of profitability and profitability block.

Production profitability - what it shows

Reflects the economic efficiency of a business or its division. Profitability of production shows how effectively the property of the enterprise is used.

Production profitability - formula

Formula for calculating the coefficient:

Calculation formula based on the new balance sheet:

Production profitability - meaning

The increase in value is related to:

• with a reduction in production costs,
• with increasing product quality,
• with an increase in profit.

A decrease may indicate:

• increase in production costs,
• deterioration in product quality,
• deterioration in the use of production assets.

Production profitability - diagram

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The production profitability ratio shows the efficiency of the company's use of its production base (fixed assets and current assets) and the quality of organization of business processes. If the indicator is high, then the enterprise rationally uses equipment, machinery, raw materials, and funds, making a profit on each unit. ROP can be calculated based on financial reporting data: balance sheet (Form No. 1) and income statement (Form No. 2). The indicator depends on the industry of the enterprise, and its normal value is Rpr>0.

It is impossible to assess the efficiency of an enterprise based on net profit alone. It is important for owners and investors to determine how optimally the existing production assets were used and what financial result each unit brought.

Production profitability(Return On Production - ROP, Rpr) is a financial ratio that shows how much profit each unit of resources involved in production brings. It is calculated as the ratio of book profit to the average annual cost of production assets and working capital of the company.

Reference! The production profitability ratio is calculated together with the profitability of products and sales, which allows us to form a holistic picture of the efficiency of using enterprise resources during production activities.

The Rpr indicator should not be equated with the return on assets (ROA) or equity (ROE) ratio: in the first case, the company’s property involved in production activities is considered, and in the second, the entire property base or funds invested in the enterprise by the owners.

Important point! The Rpr coefficient can be calculated both for the entire enterprise and for its individual production divisions. It assesses the quality of management: how well managers managed production assets.

Formula for calculating profitability indicator

To determine the profitability of production, it is necessary to use information from the financial statements of the enterprise: balance sheet (Form No. 1) and financial performance report (Form No. 2).

Reference! Balance sheet profit is a line item that cannot be found in the financial statements. In theory you can find many formulas for its calculation. However, experienced accountants and analysts know that it is an analogue of profit before tax, presented in line 2300 F. No. 2.

The production assets of an enterprise represent the sum of the company's current assets and fixed assets, which can be taken from the balance sheet. In this case, it is necessary to calculate their average annual value.

Taking into account all the above statements, we can derive a formula for calculating Rpr.

RPR = BP / ((OAng+OAkg)/2) + (OSng+OSkg)/2), where

• BP - balance sheet profit or loss of an enterprise (profit or loss before taxes).
• OA ng, kg - current assets at the beginning and end of the year.
• OS ng, kg - fixed assets at the beginning and end of the year.

Important point! In the structure of balance sheet profit, it is necessary to distinguish three basic elements: profit or loss from the sale of products, fixed assets, and other property of the enterprise.

You can imagine the above formula for determining the production profitability ratio, taking into account the numbers of items in the financial statements:

RPR = st. 2300 F. No. 2/ ((st. 1690 ng + st. 1600 kg F. No. 1) / 2) + (st. 1150 ng + st. 1150 kg F. No. 1) / 2), where

The basic stages of calculating Rpr are presented in the video clip

Normal production efficiency value

Production profitability is a relative indicator that cannot be analyzed on the basis of point data: the resulting value is usually compared with:

• Planned or basic level.
• Rpr of other enterprises in the same industry.
• With the indicators of previous years.

Important point! If the value of the coefficient is below zero, this indicates that the company has losses and an unfavorable financial situation.

There is no exact standard value for the indicator, since for capital-intensive industries that involve expensive fixed assets, it will be lower than for service and trade enterprises.

Important point! A significant increase in the ratio can be a dangerous signal: if balance sheet profit is growing at a faster rate than the production base, then the company is using debt financing excessively.

Examples of coefficient calculation

The algorithm and results of calculating the production profitability ratio are demonstrated by practical examples. Two well-known Russian corporations from industries differing in capital intensity were used as objects of assessment: PJSC Avtovaz and PJSC M.Video.

Conclusion! The ROP indicator for PJSC Avtovaz is decreasing in 2015-2017. The reasons for this development of events are the reduction in balance sheet profit, as well as the value of current assets and fixed assets. This indicates a deterioration in the company's financial condition and the need to revise the management system.

Conclusion! The M.Video Corporation operates in the Russian market very stably: for three years (2015-2017) its ROP ratio has been growing. This trend is due to an increase in balance sheet profit, as well as an increase in the cost of working capital and fixed assets.

Since Avtovaz PJSC is a representative of a capital-intensive industry, its production profitability is lower than that of the M.Video trading enterprise. This proves the need to consider enterprises of the same industry when assessing ROP.

It is most convenient to calculate production profitability not manually, but using an Excel spreadsheet editor. A visual diagram of the above calculations is given in

Profitability

When market entities conduct business activities, it is necessary to constantly analyze the results of these activities and the effectiveness of the efforts expended, as well as draw the necessary conclusions about the prospects for business development. If it is necessary to analyze the activities of an enterprise, then one of the main factors in this analysis will be profitability. This article will describe the types of profitability, its indicators, and provide examples of calculations.

What is profitability

Profitability is an indicator of economic efficiency that characterizes the profitability of an enterprise. This parameter helps to understand how effectively the company uses available resources (natural, economic, labor and financial). If the scope of activity of non-profit structures is considered, then in this case profitability will be considered the efficiency of their work. If we are talking about commercial units, then in this case precise quantitative characteristics are important. Profitability can be compared with efficiency indicators, i.e. the ratio of total costs to total profit. In other words, profitability is the ratio of income and expenses. If at the end of the reporting year a business made a profit, then this business is considered profitable.

Main types

Profitability is presented in various forms, because Performance indicators may vary depending on the type of business. When calculating different types of profitability, it is worth considering that the coefficients used will be different and, accordingly, the formulas will also differ. Types of profitability:

General return on assets(includes current and non-current assets). This characteristic can show what financial loans were used by the company in order to obtain a profit equal to 1 ruble. This characteristic is calculated from the ratio of the profit received before full payment of all types of taxes, as well as the average value of all existing assets of the company for a specific time period (year, month, half-year, quarter), i.e. it is the ability of a company's assets to create profit. If we are talking about the profitability of forming a company's assets, then it is calculated by dividing the company's profit (before tax) by the average total cost of attracted assets for the same period of time (year, month, half-year, etc.);

Profitability of goods, products. It represents the ratio between the profit that was received from the sale of goods, services, and the funds that were spent on its production. This indicator helps to characterize how profitable the production of a particular product is;

Profitability of production. This economic indicator characterizes the feasibility of running a particular type of business. Here we are talking about the relationship that arises between production costs and the final net profit. Production is considered profitable when there is a positive balance of costs and profits. Measures taken to increase production profitability include reducing the total cost of production, as well as improving its quality.

Other types of profitability and calculation formulas

For the most complete disclosure of the concept of profitability and its types, it is necessary to provide visual formulas and make calculations. Profitability indicators:

ROA= Profit/Asset Value*100%, where ROA – return on assets. Here, not only the enterprise’s own assets are taken into account, but also those attracted (for example, accounts receivable, loans);

ROFA profitability of fixed assets. The indicator is similar to the previous one. Helps evaluate the performance of fixed assets, rather than assets, which is why their cost is taken into account in the formula;

ROE = profit/capital*100%, where ROE – return on equity. This ratio indicates how effectively the enterprise's own funds are used. In this case, the level of profitability is calculated as the ratio of net profit and the amount of authorized capital (in some cases, additional capital is also involved). The difference between return on assets and return on liabilities shows the amount of borrowed funds used in running a business. It should be noted that this coefficient is recognized as one of the main indicators when analyzing the activities of enterprises in developed countries;

ROI – return on investment. This indicator helps to evaluate the profit received from the initial investment, i.e. is the ratio between the profit received and the amount of initial investment. The effectiveness of cash investments can be demonstrated using shares as an example. The investor purchased Gazprom shares for 149.5 rubles, but noticing the decline in shares on the securities market, decided to liquidate the open position and sold these securities for 135.2 rubles each, receiving a loss of 14.3 rubles. The result is that the investor received a negative return on investment of 9.56% (14.3/149.5*100% = -9.56%). The ROI coefficient itself, as well as this level of profitability, cannot be considered the main indicator of the company’s successful activities, because it cannot reflect situations that arise with some operating flows (financial investments of borrowed capital, etc.). But still, the effectiveness of the main operational turnover is reflected very clearly.

Calculations of the efficiency of conducting business activities of organizations are carried out taking into account current and one-time costs. The profitability of products and production differs:

ROM product profitability. This indicator indicates how effective the costs incurred were. Here we mean the relationship between the profit received from the sale of a product to its cost. This indicator can be calculated both for all products supplied to consumers and for individual products. When calculating profitability, the calculation formula will look like this:

Rp = (P / Sp)*100%

where Rp is the profitability of products sold, P is the profit received from sales, Sp is the cost of products sold;

The production profitability ratio helps to assess the degree of efficiency in the use of the organization's property (fixed assets and working capital). The calculation formula is as follows:

Рп = (Pb / (Fund. + Funds))*100%

where Рп – production profitability (%), Pb – balance sheet profit (thousand rubles), Phos. fund – cost of fixed assets (average for the year, thousand rubles), Fborrot. Funds – the amount of working capital (thousand rubles).