Profitability of production in simple words. Profitability of the enterprise Average profitability of production

Every businessman wants his enterprise to be successful and bring a stable high income. A number of financial and economic instruments are used to analyze production efficiency. They may differ in the complexity of the calculation, the availability of the necessary information, and the usefulness for the analytical inference process. One of the most important efficiency parameters is production profitability, the calculation formula for which is quite simple, and its contribution to understanding the economic situation at the enterprise is truly enormous.

What is enterprise profitability

Profitability (RO - returnon) is the most important indicator of the economic efficiency of the organization as a whole, or its use of capital and resources (financial, material, labor, etc.). The indicator allows you to conduct a detailed analysis of the economic activity of an enterprise, as well as compare the values ​​of economic efficiency with similar indicators of other enterprises, which allows you to draw conclusions about the success of a particular area of ​​the organization’s activities.

Unlike profit, the value of the profitability ratio is a relative indicator, which makes it possible to compare enterprises of different lines of activity and of different sizes. The coefficient allows you to compare the efficiency of a small enterprise consisting of five employees with the activities of a large factory with a staff of over a thousand people. And if a factory can easily outperform a tiny company in terms of profit, then relative indicators can show a completely different picture. In this regard, the profitability of an enterprise can be compared with the economic efficiency - the efficiency factor of the enterprise.

In the simplest terms, profitability demonstrates how much profit each ruble invested in the organization's resources or assets brings.

Economists take into account a large number of types of profitability, among which the main ones are considered to be:

• profitability of products/sales (ROTR/ROS – total revenue/sale),
• return on cost/production (ROTC – totalcost),
• return on assets (ROA – assets),
• return on investment (ROI – invested capital),
• profitability of personnel (ROL – labor).

How to calculate the indicator value

Profitability of production or cost is considered one of the main coefficients taken into account when analyzing the efficiency of a particular production process. Many novice entrepreneurs may have a question: how to calculate the profitability of an enterprise or production.

The general formula for calculating production profitability is as follows:

ROTC=(PR/TC)*100%

Here PR is the profit from the sale (sales) of products, which, in turn, can be presented as the difference between the indicators of income (revenue) and expenses (full cost). PR=TR-TC.

The very value of total cost (TC, an abbreviation for totalcost) includes a complete list of enterprise costs. These may include costs for materials, payment of wages to workers and administrative and management personnel, payment for electricity and housing and communal services, costs of an advertising campaign, ensuring labor safety, purchasing consumables and fixed assets, and other expenses. In most cases, the lion's share of costs falls on the purchase of materials, so the main production is usually called material-intensive.

Expressed as a percentage, this indicator very clearly describes how effectively an organization uses production resources. In absolute values, you can see how many kopecks of profit from sales each ruble invested in the cost of the final product will bring to the enterprise budget.

The profitability of production can be calculated both for the entire enterprise as a whole, and for each direction of production, for individual workshops or types of products.

In the hands of an experienced analyst, such information can become a real treasure trove of useful information, allowing one to compare the efficiency of various production lines and the return on investment of a particular product. A competent manager will be able to draw conclusions for himself - the production volumes of which goods should be increased, and which ones, perhaps, should be stopped producing altogether.

What can a change in the coefficient tell you?

If you trace the dynamics of changes in production profitability over a certain period of time (several months or years), you can draw certain conclusions:

The coefficient increases:

• The quality of products is increasing.
• The profit of the enterprise increases.
• The cost of finished products is reduced

The coefficient decreases:

• The importance of production costs is growing.
• Product quality is getting worse.
• Production assets are used less efficiently.

Where to get the numbers for calculations

The information necessary for the calculation can be partially obtained from financial reporting data, and partially from accounting analytics. Thus, the value of balance sheet profit is stated in the income statement, or more precisely, in line 2300 of Form 2 “Profit (loss) before tax.”

Thus, based on the balance sheet data, the production profitability ratio can be calculated using the following formula (a calculation example in this case is extremely simple, so we will not give it):

Krp = line 2200 (Form 2) / line 2120 (Form 2) * 100%

How to use the indicator correctly

The profitability of an enterprise can become a universal tool that perfectly characterizes the economic health of a company and shows its success in comparison with its closest competitors. In the following situations, the ability to correctly “read” numbers and make far-reaching and correct predictions based on them can become a very valuable factor:

• In the process of enterprise management. A manager, armed with the values ​​of an enterprise’s profitability ratio for a certain time period, and also able to analyze their values ​​and dynamics, is able to quickly determine the weak and strong points of the production process.
• To forecast expected profits. Knowing the average profitability values, the analyst can predict with a fairly high degree of probability the amount of profit that a specific production line or the entire enterprise as a whole will bring.
• Attracting potential investors. Such a universal indicator as the overall profitability of an organization can become the best recommendation for investors. Knowing these ratios and the approximate amount of his future investment, the investor can easily calculate the expected amount of his benefit.
• In case of sale of the enterprise. If a company is put up for auction, high profitability ratios will help attract large buyers and present the trade object in the most favorable light.

What factors can influence the value of profitability?

There are a lot of such factors. They can be divided into two large categories - exogenous and endogenous. The following are considered exogenous:

• Level of competition in the market. Competition directly affects the price of finished products, and therefore the amount of profit.
• Geographical factor. The territorial location of production facilities can also have a significant impact on the price of manufactured goods.
• Features of tax policy. The tax policy of the state directly affects the amount of profit received from the sale of goods.
• Political factor. As an example, we can consider the sanctions imposed on the Russian Federation by a number of European and North American states. Some types of production lost markets and significantly reduced their profitability indicators. Others, on the contrary, got rid of foreign competitors, which affected their economic indicators in the most positive way.

Endogenous factors (in other words, not directly related to the production process) can be considered:

• Efficient and modern marketing and logistics services. Their work directly affects the costs of the enterprise.
• A set of measures aimed at eliminating harmful effects on the environment. If such measures are implemented in accordance with current legislation, the costs are included in the costs of the enterprise.
• Financial policy of the organization. This category is extremely multifaceted, has many aspects, and can have a significant impact on all profitability indicators.
• Creating conditions for carrying out work activities. A satisfied employee will always be able to do more than a dissatisfied one. This truism helps many insightful businessmen increase labor productivity and reduce the cost of producing a particular product.

In turn, endogenous factors that directly affect the profitability of an enterprise can be divided into two categories:

• High quality. Introduction of new technologies into the production cycle that save resources and increase labor productivity.
• Quantitative. Expanding staff, increasing production capacity, opening additional production lines.

Of course, all these factors can play their role only if they are economically justified. For example, if the number of products sold has been steadily declining over a long period of time, then there is no point in expanding the number of employees.

Example of calculating production profitability

Let's try to compare the indicators of production profitability ratios of two enterprises. Let's call them Enterprise 1 and Enterprise 2. As initial data we will use the total cost and revenue, the values ​​of which are presented in the table for clarity:

Profit from the sale of goods for each organization can be calculated as the difference between the values ​​of revenue and total cost:

PR1 = TR1 – TC1 = 2,500,000 – 800,000 = 1,700,000 rubles;

PR2 = TR2 – TC2 = 3,400,000 – 1,500,000 = 1,900,000 rubles.

It is clearly seen that the profit from sales is higher for the second enterprise. This means that in absolute terms, Enterprise 2 will receive more profit than Enterprise 1. But does this mean that it can be considered more successful and efficient? To answer this question, it is necessary to calculate a relative indicator of efficiency, which will be the profitability of production.

Applying the formula for calculating the profitability of an enterprise, we obtain the following values:

ROTC1 = (PR1 / TC1) * 100% = (1,700,000 / 800,000) * 100% = 212.5%

ROTC2 = (PR2 / TC2) * 100% = (1,900,000 / 1,500,000) * 100% = 126.6%

Here we see a completely different picture. The profitability of the first enterprise turned out to be almost twice as high as that of the second. This means that even with less real profit, Enterprise 1 operates almost twice as efficiently as Enterprise 2.

In this way, you can easily carry out a comparative analysis of the activities of even the most seemingly incommensurable enterprises. For example, you can compare the production efficiency indicators of a large plant with a staff of 10,000 people and branches in a dozen large cities with a small workshop that produces a single type of product, the entire staff of which is 5 people. And it’s not always possible for a large plant to be ahead in such an unspoken competition.

As you can see, the value of the coefficient is calculated quite easily, and its importance for assessing the economic efficiency of any aspect of an enterprise’s activities is difficult to overestimate. All this makes the profitability of an enterprise or production the most important parameter, which should not be neglected under any circumstances.

For greater clarity, we suggest watching videos devoted to calculating the production profitability ratio, methods of analyzing it, and valuable tips for increasing its values.

For every entrepreneur, there are several basic indicators of business performance. Profit is just one of them.

It is critically important for people who start their own business to know how to calculate profitability. Otherwise, a seemingly successful enterprise may be unprofitable.

Online enterprise profitability calculator

What is profitability in simple words

Profitability is a reflection of the profitability of a businessman’s actions. Essentially, the concept implies the difference between expenses and income.

The expense part is associated with the costs of all types of resources, including labor, as well as depreciation - wear and tear of equipment during its operation. Income item is all the money received by an entrepreneur for the sale of goods and services.

Types of profitability

The types of profitability are determined by the direction of the enterprise's activities.

In economics, it is customary to distinguish the following types:

• goods and services - the difference in resource costs and sales income, sometimes calculated for a specific product;
• enterprises – accounting of all cash flows of an enterprise, used to assess the value of a business;
• assets – completeness and correct use of business units.

Calculating profitability in order to clarify the balance sheet is important not only for a business owner who wants to evaluate his asset, but will also be required when selling a business and wanting to attract third-party sources of financing.

Profitability indicators

In order to get the most complete picture of business profitability, it is recommended to analyze several indicators. This way you can take into account more factors and see the situation from different angles.

Key indicators include:

• assets;
• products;
• sale of goods and services;
• employees;
• capital, including investments.

Depending on the specifics of the business, other profitability indicators are also used, but even analyzing the above is enough to determine the current situation and the level of the trend.

How to calculate profitability

Profitability is determined using special formulas. The data used is taken from the books of account.

The key parameters required for substitution are:

• profit - the difference between income and expenses, before taxes;
• the value of assets on the company's balance sheet.

The formula is based on the fact that the first indicator is divided by the second, and the resulting result is multiplied by one hundred percent.

Sales return formula

Return on sales is the size of the markup that is added to the cost of a product when it is sold to an intermediary or the end consumer.

The formula is based on the ratio of profit to revenue multiplied by one hundred percent.

This parameter shows what part of the profit is in the total revenue from the product. This is important, because if it is low, it means the owner’s income is low.

Sales profitability is easy to calculate for small businesses or specific departments. When analyzing the efficiency of large companies, the indicator is rarely analyzed.

Product profitability formula

It is important to determine the profitability of products, since the main task of a business is to make a profit from the goods and services sold. The formula is based on the ratio of net profit and cost.

The calculation cycle is as follows:

1. A certain amount of finished goods is taken.
2. A time period for its implementation is determined, which is especially important for perishable items.
3. The cost of production is determined, that is, how much money was spent on creation.
4. After sales, the net profit indicator is calculated - income minus costs.

The last two parameters are inserted into the formula, and the indicator is measured.

Production profitability - formula and calculation example

Profitability of production allows not only to assess the current state of affairs at the enterprise, but also to determine the prospects for the growth and development of the company.

The calculation formula is identical for all types of business, regardless of the area of ​​activity.

To calculate the indicator, you need to divide the production volume of profit by costs. Next, the indicator is multiplied by one hundred percent.

Let's look at an example that characterizes the calculation:

• revenue from product sales amounted to 100,000 rubles;
• labor costs, raw materials, trade costs - 60,000 rubles;
• the profit is correspondingly equal to 40,000 thousand.

When substituting the data into the formula, the yield will be 66%.

Formula for calculating the profitability threshold

The profitability threshold is an indicator at which the enterprise will not be unprofitable, but will not make a profit.

This parameter is important for entrepreneurs in order to determine the minimum sales level that must be exceeded in order not to go into the red.

The calculation is made using two formulas:

1. Definition of margin. Subtract the company's variable costs from revenue, then multiply the difference by one hundred percent;
2. Profitability rate. The ratio of fixed costs to margin.

Thus, the key concepts influencing this indicator are:

• markup on the product when selling it;
• expenses for fixed and variable costs.

Return on current assets

Assets are the most important element of any business. It is on the competent and full use of existing units of employees, equipment and premises that the entrepreneur’s income will depend.

Calculating the return on current assets is one of the most common methods for assessing the value of an enterprise. Simply put, this analysis gives an understanding of how much money a particular person or certain equipment brings in or takes away.

If the parameter is below the zero norm for all assets, the company is unprofitable, since the available resources do not bring real profit.

ROI Calculation Formula

Calculating the return on investment is important when analyzing the effective use of funds raised for a project.

The simplest calculation formula is: the ratio of profit to investment multiplied by one hundred percent.

To obtain such a parameter as profit, the cost is deducted from the total income for the billing period.

Negative profitability

If after the calculations the parameter turns out to be negative, then this is a direct indicator of the unprofitability of the enterprise. This indicates, first of all, that the businessman’s income is lower than the basic expenses. The economic position of such a person is precarious.

Gross Margin

Gross profitability reflects how much profit each ruble received from the sale of goods and services brings.

Most often, accountants are involved in calculating gross profitability. They have a special counting scheme.

Operating profitability

Operating profitability includes calculated returns on administrative and other expenses, sales and assets. That is, it is a reflection of aggregate data and provides the most accurate reflection of the state of affairs in the company.

Ways to increase enterprise profitability

If the analysis provided disappointing results, then the entrepreneur needs to take measures to increase profitability.

Before starting to take action, it is recommended to track the dynamics over several periods of time, as factors such as:

• seasonality;
• emergence of competitors;
• rising prices for raw materials and labor in the region.

The main ways to increase profitability include:

1. Improving the quality of the manufactured product in order to increase the sales market.
2. Development of a marketing company, including advertising, search for new sales channels.
3. Reducing costs without compromising quality, for example, upgrading equipment or attracting highly qualified personnel to replace several people without a specialty, or reducing salaries.

An entrepreneur can make an assessment on his own using an online calculator if he knows the formula and initial data. It is also permissible to involve third-party specialists.

Most often, a company in its activities strives to achieve maximum profit, which is an absolute indicator of the performance of any enterprise. The absolute value of the profit indicator suggests that it is not always informative in calculating the efficiency of enterprises, especially when comparing them.

To more accurately compare the activities of enterprises and analyze their profit, relative indicators are used, of which one of the most important is the profitability indicator.

The profitability indicator is calculated for any components that correlate with each other. The formula for production profitability on the balance sheet can be based on net profit or gross profit (that is, after taxes and before taxes).

Through the profitability of production, there is a relationship between the amount of profit received and the funds spent to obtain it (the quantitative ratio of profit for each ruble of spent production funds).

Formula for production profitability on the balance sheet

Information for calculating production profitability is taken from accounting and financial statements. The amount of book profit is reflected in the income statement (line 2300, form No. 2).

The numbers for the denominator of the formula can be taken from analytical accounting registers.

The formula for production profitability on the balance sheet is as follows:

RP = P/(Sos+Sobs) *100%

Here RP is an indicator of production profitability,

P – profit, calculated depending on the volume of production,

Sos – cost of fixed assets,

Sobs – cost of working capital.

Thus, the formula for profitability of production on the balance sheet can be calculated regardless of the area of ​​activity of the organization, while reflecting the basic concept of the relationship between the profit received and the amount of production assets spent on its receipt.

Most enterprises practice calculating profitability for each individual production. The formula for production profitability on the balance sheet allows you to determine the profitability of an individual section (shop), as well as each type of product produced.

Production profitability values

The profitability of production will increase in accordance with the decrease in the cost of funds used in the process of obtaining the corresponding amount of profit. In this case, the efficiency of the enterprise will increase.

An increase in production profitability may indicate the following:

• cost reduction,
• increase in product quality,
• increase in the amount of profit.

If the profitability indicator decreases, we can talk about the following:

• deterioration in the use of fixed and working capital,
• reduction in quality,
• increase in cost.

Ways to increase production profitability

Having examined in detail the formula for production profitability on the balance sheet, we can conclude that increasing production profitability can be achieved by several methods:

• increase profit margin,
• increase the cost and efficiency of use of fixed assets,
• increase the cost and efficiency of using working capital.

Examples of problem solving

EXAMPLE 1

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.

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We wish prosperity and development to your business.

Best regards, GK Dicaster.