There is a fairly wide list of indicators necessary to calculate the effectiveness of an organization. The main share in this group is occupied by different kinds profitability. They are necessary for a more complete and objective analysis of performance results.

What is profitability in simple words

Most often, it reflects how many kopecks of a particular type of profit an organization can receive by investing one ruble in production. And in the case of sales efficiency indicator, profitability shows the share of profit in revenue.

What types, indicators, profitability ratios exist

It is customary to distinguish several groups of indicators - production, sales, capital. In each category, 3-4 values ​​are calculated. It cannot be said that all indicators are equivalent and you can take only one from the group.

In order to evaluate efficiency, it is necessary to use the entire set of types of profitability.

Return on assets

They use profit before tax and reflect how effectively the organization’s fixed assets are used and show how much profit a ruble of fixed and working capital or the total assets of the enterprise:

• fixed assets (ROFA – return on fixed assets);
• working capital (ROFA – return on currency assets);
• assets (ROA – return on assets).

The basic earning power ratio (BEP) characterizes how much a company needs to earn to cover all costs.

Production and sales profitability

They are calculated on the basis of profit from sales and show the effectiveness of the main activities of the organization:

• products (ROM – return on margin) characterizes how much profit from sales can be obtained from one ruble, taken into account in the cost of manufactured products;
• sales (ROS – return on sales) reflects the share of profit from sales in the total income of the enterprise;
• personnel (ROL – return on labor) describes how much profit the company will receive from the operation and employment of employees.

Return on Equity

Net profit is taken as a basis and characterizes the efficiency of using capital for the company’s activities. Also, this subgroup can be calculated during planning and allows you to assess whether it is profitable to invest or borrow:

• equity (ROE – return on equity) reflects the efficiency of using own funds in the activities of the enterprise;
• invested, permanent capital (ROIC – return on invested capital) shows how many kopecks of net profit the organization will receive by investing one ruble in investments;
• borrowed capital (ROBC – return on borrowed capital) describes the feasibility of taking out a loan. If the indicator is higher than the cost of borrowed funds, then it is profitable to take them, if lower, then the organization will suffer losses.

Video - 12 main profitability ratios:

How to calculate profitability

IN general view The profitability formula is the ratio of profit to part of the enterprise’s property, revenue or cost:

Profitability = Profit / Indicator whose profitability needs to be found

For example, if the efficiency of fixed capital is needed, then the numerator will be the profit from sales, and the denominator will be the average cost of fixed assets. In the case of, revenue is substituted into the denominator as an indicator of sales.

Return on assets is usually found by book profit, production and sales - by profit from sales, capital - by net profit.

Data for calculation are taken from the balance sheet and income statement.

General formulas for calculating profitability

Assets:

ROFA = BN/C VNA, Where

ROFA – return on non-current assets,

C vna – average cost outside current assets, rub.;

ROCA = BN/C both, Where

ROCA – return on working capital;

BN – profit before tax, rub.;

C both – average cost of mobile assets, rub.;

ROA = BN / C vna + C both, Where

ROA – return on assets;

BN – profit before tax, rub.;

C vna + C both – average amount of fixed and current assets, rub.

Production and sales:

ROM = PR / TC, Where

ROM – profitability of products;

PR – profit from sales, rub.;

TC – total cost;

ROS = PR / TR, Where

ROS – return on sales;

TR – sales revenue, rub.

ROL = PR / SSCH, Where

ROL – personnel profitability;

PR – profit from core activities, rub.;

SSN – average number of personnel.

Capital:

ROE = PE / SK, Where

ROE – return on equity;

PE – net profit, rub.;

SK – equity capital, rub.;

ROBC = PE/ZK, Where

ROBC – return on debt capital;

ZK – borrowed capital;

ROIC = PE / SK + DO, Where

ROIC – return on invested (fixed) capital;

PE – net profit, rub.;

SK + DO – the sum of equity and long-term debt, rub.

Example of calculation by balance

The company Ekran LLC ended the period with the following financial indicators. It is necessary to display the effectiveness of the organization's activities for 2014. Average headcount staff 25 people. The amount of equity capital is 120,000 rubles.

Indicator name		Code	As of December 31, 2013	As of December 31, 2014
ASSETS
I. NON-CURRENT ASSETS
	Total for Section I	1100	100000	150000
II. CURRENT ASSETS
	Total for Section II	1200	50000	60000
PASSIVE
III. CAPITAL AND RESERVES 6
	Retained earnings (uncovered loss)	1370	20000	40000
IV. LONG TERM DUTIES		1410
	Borrowed funds		10000	15000

Calculation of return on assets:

ROFA = 48,000 / (100,000 + 150,000)/2 = 0.384

ROCA = 48,000 / (50,000 + 60,000)/2 = 0.87

ROA = 48,000 / (125,000 + 55,000) = 0.26

Calculation of profitability of production and sales:

ROM = 50,000 / 25,000 = 0.5

ROS = 50,000 / 75,000 = 0.67

ROL = 50,000 / 25 = 2,000

Calculation of return on capital:

ROE = 40,000 / 120,000 = 0.3

ROBC = 40,000 / 15,000 = 2.66

ROIC = 40,000 / 120,000 + 15,000 = 0.296

Conclusions from the calculations in the example:

For existing production, all indicators are at normal level. It is obvious that it is profitable to use borrowed funds, employees work efficiently, and the amount of working capital is optimal. It is worth paying attention to fixed capital; there is a possibility that it is not fully exploited or there are reasons that reduce the performance of non-current assets.

It is also advisable to analyze the situation with a large amount of equity capital, which reduces the overall efficiency of the enterprise. Given current indicators, it is rational to use and restructure equity capital.

In what cases is its calculation useful?

The indicator is necessary for a qualitative assessment of the efficiency of the enterprise. Absolute indicators, such as profit and cost, do not provide a true picture of the organization's performance.

They only show the effect of production. Profitability, in its turn, allows you to assess how well and fully the company’s property and resources are used. It shows how much money can be obtained from the operation of one or another type of own or borrowed funds.

All types of profitability are important for assessing the effectiveness of an organization. Like other relative indicators, they allow not only to analyze the activities of a given enterprise, but also to compare it with competing companies.

Profitability calculated over several years reflects the dynamics of performance and can become the basis for medium- and long-term planning. Special attention it is necessary to pay attention to the profitability of fixed assets, since they occupy a fairly large share of the organization’s property and are often used inefficiently.

Video about profitability and profitability:

Business, whatever it is, requires costs. Businesswoman investing in new project, expects a return in the form of high profits and its constant growth. To assess the investment efficiency indicator, business profitability is calculated. We will tell you in the article what it gives and how it is determined.

Each entrepreneur determines the need to calculate profitability for himself. Large companies employ an economist, whose responsibilities include regular calculations of operational efficiency and planning of further work taking into account the obtained values. In addition to total profitability, for this purpose, the net return on assets, return on fixed assets, investments, sales, personnel, equity and other ratios are calculated.

How is profitability determined?

Calculating the profitability of a business is not so difficult if you have ready-made financial statements at hand. For individual entrepreneurs Those who do not keep accounting records or are just planning to open their own business will have to put everything together “by eye.” Profitability is calculated mainly as a percentage. The calculation formula is as follows:

Profitability of production = (Profit on balance / Costs of production and sales) x 100

This calculation will allow you to determine how much profit before taxes falls on 1 ruble of funds spent. For convenience, you can find a convenient online calculator online or download a special program. On average, the normal coefficient is 15-35%, but highly depends on the specifics commercial activities. For retail 10-15% is a decent result, but for the beauty or construction industry this figure will be small. For these areas you need to start from 50-100%, for legal services, trading in intangible assets - from 100%.

The above calculation shows the nominal value of profitability. There is also real profitability - the one that is determined taking into account inflation. To assess the purchasing power of an enterprise. When the indicator turns out to be low or even negative, this indicates a lack of operational efficiency and impending bankruptcy. A business with high profitability is considered promising, fully receiving a return on investment.

Factors influencing the level of profitability

Since profitability is a relative indicator, its value largely depends on internal changes in the company and external market conditions. The main ones:

• Labor productivity.
• Technical issues in production.
• Fluctuating prices for resources purchased by the enterprise, materials, third-party services, and labor.
• Changes in the assortment and prices of products sold due to changing demand and crisis.
• Seasonality, temporary equipment downtime or product defects.

The level of profitability can be increased by accelerating trade turnover, reducing costs, and rationally increasing prices. In any case, to stabilize the situation, a number of other economic indicators and points should be calculated and taken into account: labor productivity, product quality, the situation with competitors.

Example of profitability calculation

For better understanding, let us show a simple example of calculating the level of profitability using the above formula.

Initial data:

• Total expenses (purchase of raw materials, wages, rent, materials for work, fuels and lubricants, etc.) – 18 million rubles.
• Total income (revenue) – 22 million rubles.

First, let's calculate the profit: income - expenses = 4 million rubles.

Profitability = (4 million rubles/18 million rubles) x 100 = 22.2%

Calculations can be made per month, year, quarter. For convenience, profitability for each type of product or production department is often calculated separately.

It is important to compare indicators over time and take measures to improve them. Return on capital, personnel, assets and other things is also calculated separately. Economic analysis must be taken seriously. This is an opportunity to find out the company's weaknesses and improve its overall profitability.

Any enterprise in the process of economic activity strives to make a profit from its activities. The ideal formula for any business would be to get as much income as possible and spend a minimum of resources on it.

What is used for assessment?

To evaluate the activities of an enterprise, a variety of economic and financial indicators are used: cost of production, profitability ratio, sales margin, cash turnover, capital flow, and many others. Each such indicator has its own calculation method, for example, to determine profitability, the profitability formula for the main activity of the enterprise is used.

Profitability of production and enterprise

The term “profitability” itself has German roots and means “profitability.” By assessing profitability, one can draw conclusions about the efficiency of using funds in an enterprise. But how to calculate production profitability?

This indicator determines the profit that the manufacturer received per unit of its costs. That is, for example, if the profitability is 20%, then the enterprise received 20 rubles of profit for every ruble that was spent on goods or provision of services. The lower the profitability, the less the company earns from one conventional unit of production. These theses are confirmed by the profitability formula for the main activities of the enterprise.

Profitability ratios are also called profitability ratios. In fact, it is possible to determine the efficiency and quality of management at an enterprise by calculating the profitability of the enterprise's core activities. The formula for calculation is given later in the article. If they are not used rationally, profitability will decrease. And with the efficient and economical use of raw materials and other valuables, it will grow.

The production profitability formula will help you find out the level of profitability, by which you can judge whether it is profitable to engage in such activities or whether production needs to be repurposed in another direction. In other words, with the help of mathematics it is possible to justify the feasibility or unprofitability of conducting a particular type of activity.

Profitability calculation

The formula for the profitability of the main activity of an enterprise, which will show the result in the form of percentages, is as follows:

R main = ((Profit from operating activities) / (Cost of production + + Administrative expenses)) * 100%,

• Profit from core activities = (Enterprise income from core activities) - (Cost of production + General production expenses + Administrative expenses).
• The cost of production is the direct costs of conducting activities (wages and salaries of workers who are directly involved in the production process, costs of purchasing and delivering raw materials, materials that are consumed in production, etc.).
• General production costs - include energy costs, public utilities, paper, cleaning services, wages for personnel who are not directly related to the production process, but are employed in servicing business processes (secretaries, technicians, cleaners, security guards and others), as well as other costs that cannot be attributed to direct costs.
• Administrative expenses are the costs of maintaining administrative and management personnel, holding meetings and conferences, rewarding employees for high achievements, holding sports competitions and other events, traveling to various conferences for directors, as well as other costs incurred by the enterprise to organize the production process.

In order to see the coefficient, the profitability formula for the main activity of the enterprise is calculated without multiplying by 100%.

In principle, this calculation is also suitable for other types of profitability, only with some modifications. So, for example, the formula for production profitability is as follows:

P pr. = ((Profit from the sale of goods) / (Cost of production of goods + General production costs for the production of goods + Administrative expenses for the production of goods)) * 100%.

What level of profitability is considered normal?

The first step is to consider the main values ​​of the profitability indicator. The profitability of core activities, the calculation formula for which is given above, can take the most different meanings. If the coefficient is below zero, then this shows that the company spends more money on the production of goods or services than it later earns from their sale.

A coefficient equal to 0 indicates that the company does not make a profit, but also does not incur financial losses from its activities.

If profitability is above 0, then the company is operating at a profit.

It must be taken into account that in different areas business has its own acceptable profitability of its core activities, the calculation formula of which speaks about this. There are industries in which it is necessary to cover the risks that manufacturers encounter in certain areas of their activities.

Russia is no exception. At enterprises that engage in different activities, profitability indicators can differ dramatically. However, a company with lower profitability will not always be less successful. There are a number of reasons for this related to capital turnover and other features of the functioning of enterprises in various sectors of the economy.

Normal profitability in the field of building materials and other production

Thus, in the construction materials production industries, as well as in those that have high transportation potential to other countries, the average profitability indicators are at the following level:

• operation of oil and gas pipelines (80-90%);
• production of cement products (80-85%);
• fertilizer production (80-85%);
• production and processing of non-ferrous metals (60-65%);
• production of rolled metal products (35-40%).

Normal profitability in banking

In the field banking services and for financial institutions the following indicators are observed in the Russian Federation:

• clearing services (65-70%);
• servicing trading in financial markets (55-60%);
• maintenance of registers on the securities market (40-45%).

Normal profitability of goods consumed by humans

The production of goods that are consumed by the population has the following profitability indicators:

• manufacturing of tobacco products (40-42%);
• brewing (25-30%);
• production household appliances (20-25 %).

Pitfalls of profitability indicator

Despite the fact that the formula for the profitability of the main activity of an enterprise is quite simple and understandable, one cannot look at the final indicator straightforwardly.

There are many methods for analyzing profitability, which characterizes the wide range of different types of its indicators.

First of all, it is important to evaluate and compare sales volumes of different periods, as well as track those periods. It often happens when a good and promising business becomes unprofitable precisely because of the wrong approach to assessing the required volumes of production and sales of goods and services.

For example, a manufacturer of any product wanted to increase the profit of the enterprise not by reducing the level of production costs, but by increasing the volume of output.

The formula for the profitability of production at the output will show that profitability can drop significantly or even be negative. What is this connected with? There are many factors. There is always the possibility of loss of sales markets or their volume insufficiency. Relations with sellers may deteriorate, or the market simply does not need the volume of products produced, since demand is limited. In simple words, if there is no one to sell the product, then why does it not need to be produced. In case of excess production, the goods will simply lie in warehouses and spoil.

You should also consider the rate of capital turnover. For the first example, you need to analyze the time frame between the initial purchase of raw materials and the point when money was received for the manufactured products. This will be a full production cycle. The profitability of producing 1 product can be, for example, 50%. If there is a long period of product turnover, and the volume of production is limited, then in reality the profit may be too small to pay all current expenses. That is, a profitability mark of 50% may not at all indicate the success of the enterprise, but will simply characterize the specifics of the industry and production methods.

How to correctly use the production profitability indicator?

Of course, production profitability is one of the most important indicators by which one can analyze the efficiency of an enterprise and draw any conclusions about the production process itself.

When analyzing the activities of any enterprise, it will not be enough to simply know how to calculate the profitability of the main activity; you need to remember about other indicators, as well as various ones. It is impossible to extract profitability from the whole system of indicators in which it is included. This includes financial stability, liquidity, solvency, etc. In addition, it is necessary to carry out a vertical balance sheet of the enterprise, use financial indicators such as capital turnover, asset movement.

Only in this case can you fully assess the profitability indicator, determine the prerequisites for this level and ways to effectively increase it.

Market subjects, leading economic activity, must regularly analyze the final results of the work performed, as well as the effectiveness of the efforts spent. Each such analysis should end with a summing up of results that will indicate further prospects for the development of business. If you need to perform an economic analysis of activity, profitability will become practically the main factor.

Profitability in simple terms

The term “profitability” means a certain indicator that determines economic efficiency, characterizing the profitability of entrepreneurial “labor”. Using this parameter, the manager can understand whether the enterprise is effectively using the resources at its disposal. Such resources may include financial, natural, as well as labor and economic resources.

If we talk about the sphere of activity of non-commercial structures, it should be noted that the profitability indicator in this case can be considered the effectiveness of the work performed by it. When we're talking about about commercial organizations, accurate quantitative indicators are important. Modern economic theory compares profitability with an indicator such as efficiency, which is the ratio of the sum of final costs and the final profit received from the company's activities.

In other words, the profitability indicator is a simple ratio of expenses and income received. If, summing up the results for last years, the accounting department announced that the company made a profit, the business is considered profitable and profitable.

Types of profitability

Today profitability can be represented in different types, because determining business efficiency may require calculations of different content. When making calculations for different business areas, you need to take into account that the coefficients and formulas for calculating them will be different. Profitability happens:

1. Overall profitability of non-current and current assets. This characteristic indicates financial loans that were used by the organization to increase profits in the amount of 1 ruble. The coefficient is calculated based on profit ratio, which was on the balance sheet of the enterprise before payment of the full amount of established taxes, and average price all assets at the disposal of the company at a specific period of time. Total profitability can be calculated for a quarter, half a year, year or month and represents the ability of the enterprise's assets to increase profit. If you need to calculate the profitability of asset formation, you need to divide the amount of profit before taxes by the calculated average cost assets that were attracted precisely during that time period;
2. Product profitability is an economic indicator that acts as the ratio between the profit received from the sale of goods and the costs associated with their production. The resulting coefficient will give an assessment of the profitability of the production of each specific product;
3. profitability of production implies a specific economic coefficient that allows you to adequately assess the feasibility of running any business. To calculate it, it is necessary to calculate the ratio of costs and net final profit. If the balance sheet profit indicator and the balance of fixed costs are positive, the production operation can be considered profitable. To increase production profitability, it is necessary to reduce the final production cost, leaving its quality the same or improving it.

Types of profitability and calculation formulas

In addition, profitability can be reproduced by the following indicators:

1. ROS - return on sales is the ratio of profit received from the sale of the product range sold and the company's revenue. To put it simply, the ratio is the ratio of net profit remaining after deducting tax deductions and sales volumes. The indicator displays the percentage of profit included in each ruble earned by the organization. Using this coefficient, the cost of each product is formed. The indicator also provides an adequate assessment of the company’s costs;
2. ROL is an indicator of labor profitability, which is shown as the ratio between net profit and number of employees, registered at the enterprise in a certain period of time. In other words, the organization's managers must control the threshold of the number of employees at which it will be possible to obtain maximum profit;
3. The profitability of contracting services is calculated as follows:

R other services = (3 non-rep. – 3 rep.)/3 rep.

When working with contractors, it is also necessary to take into account that if the plan is not fulfilled, the contractor will suffer significant losses, for example, fines and other sanctions.

Ways to increase profitability

To determine trends in fluctuations in profitability of sales, it is necessary to establish a reporting period and a base period. As a basis for the base period, you can take the indicators that were calculated for the last quarter or year, when the profit earned by the company was maximum. Next, the coefficient of the reporting period will be compared with the coefficient for the base period.

Return on sales can be artificially increased. To do this, it is necessary either to increase the price of the goods sold or to reduce the cost. To make the right decision, a company must take into account the following factors: fluctuations in consumer demand, market dynamics, assessment of the work of competitive organizations, and so on.

In general, to improve profitability, profitability must be improved. You can do this in the following ways:

1. increasing production capacity. The use of technological progress requires additional material investments, but allows savings in the further course of the production process. Production equipment already in place at the enterprise can be modernized, thereby saving resources and increasing labor efficiency.
2. by improving the quality of products you can significantly influence the increase in demand;
3. having developed a competent marketing policy that will be based on product promotion through the use of market conditions and customer preferences. Large enterprises have entire departments dedicated to marketing. In small enterprises, the functions of a marketer are performed by managers.
4. reducing the cost of the product range sold. This can be done by finding suppliers who offer the necessary raw materials, products or services at prices lower than those of competitors. The main thing here is to monitor the quality, which should not suffer.