Hello! Today we’ll talk about profitability, what it is and how to calculate it. aimed at making a profit. The correct operation and effectiveness of the management methods used can be assessed using certain parameters. One of the most optimal and informative is the profitability of the enterprise. For any entrepreneur, understanding this economic indicator is an opportunity to assess the correctness of resource consumption in the enterprise and adjust further actions in all directions.

Why calculate profitability

In many cases, the financial profitability of an enterprise becomes a key indicator for analyzing the activities of a business project, which helps to understand how well the funds invested in it pay off. Correctly calculated indicators for several factors and items are used by the entrepreneur for pricing services or goods, for general analysis at the working stage. They are calculated as a percentage or used in the form of a numerical coefficient: the larger the number, the higher the profitability of the enterprise.

In addition, it is necessary to calculate enterprise profitability ratios in the following production situations:

• To forecast the possible profit that the company can receive in the next period;
• For comparative analysis with competitors in the market;
• To justify large investment investments, helping a potential transaction participant determine the projected return on a future project;
• When determining the real market value of a company during pre-sale preparation.

Calculation of indicators is often used when lending, obtaining loans or participating in joint projects, developing new types of products.

Enterprise profitability

Discarding scientific terminology, we can define the concept:

Enterprise profitability as one of the main economic indicators that well characterizes the profitability of an entrepreneur’s labor. Its calculation will help you understand how profitable the chosen project or direction is.

Many resources are used in the production or sales process:

• Labor (hired workers, personnel);
• Economic;
• Financial;
• Natural.

Their rational and correct operation should bring profit and constant income. For many enterprises, analysis of profitability indicators can become an assessment of operating efficiency for a certain (control) period of time.

In simple words, business profitability is the ratio between the costs of the production process and the resulting profit. If after a period (quarter or year) a business project has produced a profit, then it is called profitable and beneficial for the owner.

To carry out correct calculations and predict indicators in future activities, it is necessary to know and understand the factors that influence profitability to varying degrees. Experts divide them into exogenous and endogenous.

Among exogenous ones there are:

• Tax policy in the state;
• General sales market conditions;
• Geographical location of the enterprise;
• Level of competition in the market;
• Features of the political situation in the country.

In many situations, the profitability and profitability of an enterprise is influenced by its geographical position, proximity to sources of raw materials or consumer clients. The situation on the stock market and exchange rate fluctuations have a huge impact.

Endogenous or internal production factors that greatly influence profitability:

• Good working conditions for personnel of any level (which necessarily has a positive effect on product quality);
• Efficiency of the company's logistics and marketing policy;
• General financial and management policies of management.

Taking into account such subtleties helps an experienced economist make the level of profitability as accurate and realistic as possible.

Factor analysis of enterprise profitability

To determine the degree of influence of any factors on the level of profitability of the entire project, economists conduct a special factor analysis. It helps to determine the exact amount of income received under the influence of internal factors, and is expressed by simple formulas:

Profitability = (Profit from sales of products / Cost of production) * 100%

Profitability = ((Product price - Product cost) / Product cost)) * 100%

Typically, when conducting such financial analysis, a three-factor or five-factor model is used. Quantity refers to the number of factors used in the counting process:

• For the three-factor factor, the profitability of manufactured products, the indicator of capital intensity and turnover of fixed assets are taken;
• For the five-factor it is necessary to take into account labor and material intensity, depreciation, and turnover of all types of capital.

Factor calculation is based on the division of all formulas and indicators into quantitative and qualitative, which help to study the development of the company with different sides. It shows a certain relationship: the higher the profit and capital productivity from production assets enterprise, the higher its profitability. It shows the manager the relationship between standards and results economic activity.

Types of profitability

In different production areas or types of business, specific indicators of enterprise profitability are used. Economists identify three significant groups that are used almost everywhere:

1. Profitability of products or services: the basis is the ratio of the net profit received from the project (or direction in production) and the costs spent on it. It can be calculated both for the whole enterprise and for one specific product;
2. Profitability of the entire enterprise: this group includes many indicators that help characterize the entire enterprise as a whole. It is used to analyze a working project by potential investors or owners;
3. Return on assets: a fairly large group of various indicators that show the entrepreneur the feasibility and completeness of using a certain resource. They allow you to determine the rationality of using loans, your own financial investments or other important assets.

Analysis of the profitability of an enterprise should be carried out not only for internal needs: this is an important stage before large investment projects. It may be requested when providing a loan, or it may become the starting point for enlarging or reducing production.

A real complete picture of the state of affairs at the enterprise can be obtained by calculating and analyzing several indicators. This will allow you to see the situation from different angles and understand the reason for the decrease (or increase) in expenses for any items. To do this, you may need several coefficients, each of which will reflect a specific resource:

1. ROA – return on assets;
2. ROM – level of product profitability;
3. ROS – return on sales;
4. ROFA – return on fixed assets;
5. ROL – personnel profitability;
6. ROIC – return on investment in an enterprise;
7. ROE – return on equity.

These are just a small number of the most common odds. To calculate them, it is enough to have figures from open sources - the balance sheet and its annexes, current sales reports. If an estimated assessment of the profitability of a business for launch is needed, the data is taken from a marketing analysis of the market for similar products or services, from competitors’ reports available in a general overview.

Calculation of enterprise profitability

The largest and most general indicator is the level of profitability of the enterprise. To calculate it, only accounting and statistical documentation for a certain period is used. In a more simplified version, the formula for enterprise profitability looks like this:

P= BP/SA*100%

• P is the main profitability of the enterprise;
• BP is an indicator of balance sheet profit. He equal to the difference between revenue received and cost (including organizational and management costs), but before taxes are subtracted;
• CA – the total cost of all current and outside current assets, production capacity and resources. It is taken from the balance sheet and its annexes.

For the calculation, you will need the average annual cost of all tangible assets, the depreciation of which is used in the formation of the selling price for services or goods.

If the assessment of the enterprise's profitability is low, then certain management measures should be taken to improve the situation. It may be necessary to adjust production costs, reconsider management methods or rationalize the use of resources.

How to calculate return on assets

A complete analysis of an enterprise's profitability indicators is impossible without calculating the efficiency of using various assets. This is the next important stage, which helps to assess how fully all assets are used and understand their impact on profit. When assessing this indicator, pay attention to its level. A low value indicates that capital and other assets are not performing sufficiently, while a high value confirms the correct management tactics.

In practice, the return on assets (ROA) indicator for an economist means the amount of money that falls on one unit of assets. In simple words, it shows the financial return of a business project. Calculation for all types of assets must be carried out regularly. This will help to timely identify an object that does not bring return or benefit in order to sell it, lease it or modernize it.

In economic sources, the formula for calculating return on assets looks like:

• P – profit for the entire analyzed period;
• A is the average value by type of asset for the same time.

This coefficient is one of the three most revealing and informative for a manager. Getting value less than zero indicates that the enterprise is operating at a loss.

Return on fixed assets

When calculating assets, the profitability ratio of fixed assets is separately identified. These include various means of labor that are directly or indirectly involved in the production process without changing the original form. The period of their use must exceed a year, and the amount of depreciation is included in the cost of services or products. Such basic means include:

• Any buildings and structures in which workshops, offices, laboratories or warehouses are located;
• Equipment;
• Heavy duty vehicles and loaders;
• Office and work furniture;
• Passenger cars and passenger transport;
• Expensive tool.

Calculating the profitability of fixed assets will show managers how effective the economic activity of a business project is and is determined by the formula:

R = (PR/OS) * 100%

• PE – net profit for a certain period;
• OS – cost of fixed assets.

This economic indicator is very important for commercial manufacturing enterprises. It gives an idea of ​​the share of profit that falls on one ruble of invested fixed assets.

The coefficient directly depends on profitability and should not be less than zero: this means that the company is operating at losses and is using its fixed assets irrationally.

Profitability of products sold

This indicator is no less important for determining the level of profitability and success of the company. In international economic practice, it is designated as ROM and is calculated using the formula:

ROM=Net profit/cost

The resulting coefficient helps determine the efficiency of sales of manufactured products. In fact, this is the ratio of sales income and costs of its production, packaging and sale. For an economist, the indicator clearly demonstrates how much each ruble spent will bring in percentage terms.

The algorithm for calculating the profitability indicator may be more understandable for beginners products sold:

1. The period in which it is necessary to analyze the indicator is determined (from a month to a whole year);
2. The total amount of profit from sales is calculated by adding up all income from the sale of services, products or goods;
3. Net profit is determined (according to the balance sheet);
4. The indicator is calculated using the above formula.

A good analysis will include a comparison of profitability of products sold over several periods. This will help determine the decline or increase in the company’s income over time. In any case, you can conduct a more in-depth review of each supplier, group of products or assortment, and work through the customer base.

Return on sales

Margin or return on sales is another important consideration when pricing a product or service. It shows what percentage of total revenue comes from the profit of the enterprise.

There is a formula that helps calculate this type of indicator:

ROS= (Profit / Revenue) x 100%

As a basis for calculation, can be used different types arrived. Values ​​are specific and vary depending on the product range, company activity and other factors.

Sometimes experts call return on sales the rate of profitability. This is due to the ability to show the share of profit in total sales revenue. It is also calculated over time to track changes over several periods.

In the short term, a more interesting picture can be given by operating profitability of sales, which can be easily calculated using the formula:

Operating return on sales = (Profit before tax / Revenue) x 100%

All indicators for calculations in this formula are taken from the “Profit and Loss Statement”, which is attached to the balance sheet. The new indicator helps the entrepreneur understand what real share of revenue is contained in each monetary unit of his revenue after paying all taxes and fees.

Such indicators can be calculated for a small enterprise, one department or an entire industry, depending on the task at hand. The higher the value of this economic coefficient, the better the enterprise performs and the more profit its owner receives.

This is one of the most informative indicators that helps determine how profitable a business project is. Without calculating it, it is impossible to draw up a business plan, track costs over time, or assess the profitability of the enterprise as a whole. It can be calculated using the formula:

R=VP/V, Where:

• VP – gross profit (calculated as the difference between the revenue received from the sale of goods or services and the cost);
• B – proceeds from sale.

The formula often uses a net profit indicator, which better reflects the state of affairs at the enterprise. The amount can be taken from the balance sheet appendix.

Net profit no longer includes income tax, various selling and overhead expenses. It includes current operating costs, various penalties and paid loans. To determine it, the total revenue that was received from the sale of services or goods (including discounts) is calculated. All expenses of the enterprise are deducted from it.

It is necessary to carefully select the time period depending on the task of financial analysis. To determine the results of internal control, the calculation of profitability is carried out over time regularly (monthly or quarterly). If the goal is to obtain an investment or loan, a longer period is taken for comparison.

Obtaining the profitability ratio provides a lot of information for the management personnel of the enterprise:

• Shows the correspondence between actual and planned results, helps evaluate business performance;
• Allows you to conduct a comparative analysis with the results of other competing companies in the market.

If the indicator is low, the entrepreneur needs to think about improving it. This can be achieved by increasing the amount of revenue received. An alternative is to increase sales, raise prices slightly, or optimize costs. You should start with small innovations, observing the dynamics of changes in the coefficient.

Personnel profitability

One interesting relative indicator is personnel profitability. Almost all enterprises, regardless of their form of ownership, have long taken into account the importance of effective labor management. They influence all areas of production. To do this, it is necessary to monitor the number of personnel, their level of training and skill, and improve the qualifications of individual employees.

The profitability of personnel can be determined using the formula:

• PE – net profit of the enterprise for a certain period of time;
• CH – number of employees at different levels.

In addition to this formula, experienced economists use more informative ones:

1. Calculate the ratio of all personnel costs to net profit;
2. The personal profitability of one employee, which is determined by dividing the costs associated with him by the share of profit brought to the enterprise budget.

Such a complete and detailed calculation will help determine labor productivity. Based on it, you can carry out a kind of diagnostics of jobs that may be reduced or need to be expanded.

Do not forget that the profitability of personnel may be affected by low-quality or old equipment, its downtime or other factors. This can reduce performance and incur additional costs.

One of the unpleasant, but sometimes necessary methods is often reducing the number of employees. Economists must calculate the profitability for each type of personnel in order to highlight the weakest and most vulnerable areas.

For small enterprises, regular calculation of this coefficient is necessary in order to adjust and optimize their expenses. With a small team, it is easier to carry out calculations, so the result can be more complete and accurate.

Profitability threshold

For many trade and manufacturing enterprises great importance has a calculation of the profitability threshold. It means the minimum volume of sales (or sales finished products), in which the revenue received will cover all costs of production and delivery to the consumer, but without taking into account profit. In fact, the profitability threshold helps the entrepreneur determine the number of sales at which the enterprise will operate without losses (but will not make a profit).

In many economic sources, this important indicator can be found under the name “break-even point” or “ critical point" It means that the enterprise will receive income only if it overcomes this threshold and increases the coefficient. It is necessary to sell goods in quantities that exceed the volume obtained according to the formula:

• PR – threshold (norm) of profitability;
• FZ – fixed costs for sales and production;
• Kvm – gross margin coefficient.

The last indicator is pre-calculated using the formula:

Kvm=(V – Zpr)*100%

• B – enterprise revenue;
• Zpr – the sum of all variable costs.

The main factors influencing the profitability threshold ratio:

• Product price per unit;
• Variable and fixed costs at all stages of production and sale of this product (service).

With the slightest fluctuation in the values ​​of these economic factors, the value of the indicator also changes up or down. Of particular importance is the analysis of all expenses, which economists divide into fixed and variable. The first include:

• Depreciation for fixed assets and equipment;
• Rent;
• All utility costs and payments;
• Salaries of enterprise management employees;
• Administrative costs for their maintenance.

They are easier to analyze and control, and can be monitored over time. Variable costs become more “unpredictable”:

• Wages of the entire workforce of the enterprise;
• Fees for servicing accounts, loans or transfers;
• Costs for the purchase of raw materials and components (especially when exchange rates fluctuate);
• Payment for energy resources spent on production;
• Fare.

If a company wants to remain consistently profitable, its management must control the rate of profitability and analyze expenses for all items.

Any enterprise strives to develop and increase capacity, open new areas of activity. Investment projects also need detailed analysis, which helps determine their effectiveness and adjust investments. In domestic practice, several basic calculation methods are more often used, giving an idea of ​​what the profitability of a project is:

1. Methodology for calculating net present value: it helps determine the net profit from a new project;
2. Methodology for calculating the profitability index: necessary to generate income per unit of cost;
3. Method for calculating marginal efficiency of capital (internal rate of return). It is used to determine the maximum possible level capital costs V new project. The internal rate of return is most often calculated using the formula:

INR = (current net worth / current initial investment amount) * 100%

Most often, such calculations are used by economists for certain purposes:

• If necessary, determine the level of expenses in the case of developing a project using raised funds, loans or credits;
• To prove cost-effectiveness and document the benefits of the project.

If there are bank loans, calculating the internal rate of return will give the maximum allowable interest rate. Its excess in real work will mean that the new venture or direction will be unprofitable.

1. Methodology for calculating the return on investment;
2. A more accurate modified method for calculating the internal rate of return, for the calculation of which the weighted average cost of the advanced capital or investment is taken;
3. An accounting rate of return technique that is used for short-term projects. In this case, profitability will be calculated using the formula:

RP=(PE + depreciation/amount of investment in the project) * 100%

PE – net profit from a new business project.

Full payment different ways is done not only before developing a business plan, but also during the operation of the facility. This is a necessary set of formulas that owners and potential investors use when trying to assess the possible benefits.

Ways to increase enterprise profitability

Sometimes the analysis produces results that require serious management decisions. To determine how to increase profitability, it is necessary to understand the reasons for its fluctuations. To do this, the indicator for the reporting and previous periods is studied. Typically, the base year is the past year or quarter in which there was high and stable revenue. What follows is a comparison of the two coefficients over time.

The profitability indicator may be affected by changes in selling prices or production costs, increases in costs or the cost of raw materials from suppliers. Therefore, it is necessary to pay attention to factors such as seasonal fluctuations in the demand of product buyers, activity, breakdowns or downtime. When solving the problem of how to increase profitability and, it is necessary to use various ways profit increase:

1. Improve the quality of products or services and their packaging. This can be achieved by modernizing and re-equipping its production facilities. This may require serious investment at first, but in the future it will more than pay off in resource savings, a reduction in the amount of raw materials, or a more affordable price for the consumer. You can consider the option;
2. Improve the properties of your products, which will help attract new consumers and become a more competitive company in the market;
3. Develop a new active marketing policy for your business project and attract good management personnel. Large enterprises often have an entire marketing department that deals with market analysis, new promotions, and finding a profitable niche;
4. Various ways to reduce costs in order to compete with a similar range. This should not come at the expense of the quality of the product!

The manager needs to find a certain balance among all the methods in order to achieve a lasting positive result and maintain the enterprise’s profitability indicators at the proper level.

Many individual entrepreneurs and managers of small businesses evaluate the effectiveness of their business activities using a simple trade margin. Simply put, having purchased a batch of goods for 100 rubles. per unit, and having sold at 150, they consider that they have received a net profit of 50%.

Perhaps, to evaluate such operations of ordinary resale, this indicator, which, by the way, is called profitability of product sales, and can tell something about the return on invested capital, but can such a business really be called serious? Indeed, one fine day, if there is a sharp drop in demand for a product being sold or if a low-quality batch is purchased, the business will definitely stop due to a lack of working capital.

How to find out what share in the formation of profit do transportation costs have and what price should they be attributed to - purchase or sales? What borrowed funds were involved and how were they reflected in the final result? What impact will interest on loans have on future financial performance? What are the overhead and operating costs and are they included in the profit? How to calculate production profitability?

And such questions arise even when carrying out simple purchase and sale transactions. How then to analyze the financial and economic activities of a serious trading or manufacturing company that has a large volume of current operations, attracts investments and loans, invests in working capital and expansion of production?

Why is calculation necessary?

An entrepreneur who wants to seriously run his business, successfully develop and expand it, must constantly and scrupulously conduct the most thorough analysis of economic performance, identify factors influencing an increase or decrease in profits, and look for ways to overcome problems. For such an analysis, there are time-tested characteristics and methods for calculating the efficiency of business activities.

The main economic indicator characterizing the commercial success of an enterprise is is, of course, profit, or the excess of its income over expenses. But the absolute value of profit says little about business performance. It’s one thing: a million rubles earned by a tiny company of three people working in a small office occupying one room, and quite another thing - a large plant or factory with multi-million dollar fixed assets. In the first case, we can talk about super-profits, in the second - about sliding towards the loss-making threshold.

That is why the main indicator of economic efficiency is not taken absolute value net profit, and its ratio to various types costs involved in its creation. They're called profitability ratios and allow us to identify both factors both increasing profitability and hindering it. These characteristics are the main tools for economic analysis of business activities, which allow one to assess the investment attractiveness and creditworthiness of a company.

When issuing a loan, any bank will study first of all the company’s profitability indicators, and an investor planning to finance a new project will study the profitability of a business idea, that is, both will be interested in the possibility of a quick return on their investments and the risks associated with it. Many business counterparties will also invariably be interested in these characteristics in order to determine the reliability of the business partnership.

In the most general sense, profitability ratios make it possible to see in numerical terms the share of profit received by an enterprise over a certain period of time in each ruble spent to extract it. Simply put, if a company’s profitability is, say, 20%, this means that in every ruble it earns, the share of net profit is 20 kopecks.

Formulas and calculation examples

For trade enterprises, both retail and wholesale, the most important parameter showing the share of profit in total sales is:

Return on sales = Net profit/Revenue.
Companies engaged in the production of any product must take into account the effectiveness of financial investments in the production process using such an indicator as:

Production profitability = Sales profit / Production costs.
One of the most important coefficients showing the efficiency of using working capital and expressing the measure of the company’s profitability for each ruble invested in the formation of its assets is:

Return on Assets = Net Profit / Assets.

In all these and subsequent formulas:

1. Revenue from sales- the difference between revenue and operating costs, i.e. profit before tax.
2. Production costs- the sum of the cost of fixed assets and working capital.
3. Net profit- funds remaining with the company from the income received, after deducting all costs, production costs, taxes, interest on loans.
4. Revenue- the total amount of funds received as a result economic activity from sales of products, sales of goods or services, investments, sales of securities, lending, etc.
5. Assets- the total value of the company’s property, cash, inventories, accounts receivable, fixed assets.
6. Net assets- the difference between the value of all assets and the amount of debt obligations, or liabilities. The final value of the third section of the balance sheet.

What influences this indicator?

As can be seen from the calculation, despite the increase in the company's net profit, the increase in investments in production and working capital, its profitability is falling. The reason for this in this case is the growth of non-current assets. And it’s good if it is due to long-term investments, which in the near future will begin to generate stable income. Or the acquisition of intangible assets, for example, licenses for the production of new types of products, which will soon provide additional profit.

If this decrease is associated with an unreasonable increase in fixed assets not involved in production, then this indicator will continue to reduce the profitability of the enterprise’s assets. Or in the case when the analysis shows an increase in the costs of repairing means of production - this is a signal that it is necessary to replace the equipment.

IN general case The profitability of an enterprise is influenced by many factors, both internal and external:

1. External, subjective: market conditions, inflation rate, state tax policy, competitive pressure.
2. Internal, or subjective: volume of assets, production assets, turnover; technical equipment, labor productivity and many others.

All of them act either directly or indirectly, affecting both sales volume and cost levels. A thorough analysis of the impact of each of them on the profitability of the enterprise will allow it to be increased by improving production, stimulating product sales, increasing efficiency and reducing unjustified expenses.

Profitability analysis by link

In all cases, increased profitability and lower costs help improve profitability. The simplest, but also the most ineffective way to increase it is to increase the selling price of products to extract more profit. Ineffective because overpricing may result in a decrease in sales rather than an increase.

In conditions of maintaining the average market competitive price for products, there is only one way to increase profitability - reducing unjustified costs in all parts of the production chain and sales of the finished product. Unjustified in this case will be variable costs that are not directly involved in the formation of the cost of production and the formation of its price, but occasionally reduce the profit from its sale.

It is for such an analysis that there are separate profitability ratios, showing the influence of each resource in creating profit. For a more in-depth analysis, you can use, for example, production efficiency coefficients such as:

1. Profitability of fixed assets = Net profit / Cost of production assets.
2. Return on current assets = Net profit / Current assets.

Another of the most important ratios showing the efficiency and turnover of investments in a company’s equity capital is calculated using the Dupont equation: return on equity = Net profit / Net assets.

It is the product of three coefficients - Net profit margin * Resource productivity * Capitalization, Where:

1. Net profit margin = Net profit/Revenue. The company's ability to reinvest in increasing working capital.
2. Resource efficiency = Revenue/Assets. Shows the efficiency of asset management by the company or the turnover of each ruble invested in assets over a certain period of time.
3. Capitalization = Assets / Net Assets. Allows you to evaluate the effectiveness of borrowed funds or lending.

As an additional parameter when considering the efficiency ratio of debt capital in relation to equity, a simple formula is often used: leverage = Borrowed funds / Net assets.

In contrast to Return on Assets, Return on Equity shows the proportion of debt in increasing the company's profitability. It shows the effectiveness and attractiveness of lending to a given enterprise for investors or banks. In some cases, it can show the management of an enterprise that even if there is sufficient equity capital, it is better to attract additional financing through borrowed capital if this increases the efficiency of equity capital.

Among the many coefficients, the one that shows the break-even point of the enterprise, below which the total costs will begin to exceed the total income, also plays a significant role: Profitability threshold = Fixed costs / (Revenue – Variable costs). It can be calculated both for the company as a whole and for individual types of products.

In addition to these main indicators, other profitability ratios can be used to analyze the economic activity of an enterprise: personnel, contracting services, investments, trade margins, total and net assets, and others.

It must be said that excessively inflated profitability values ​​show the company’s greater efficiency, but indicate the high risks accompanying its commercial activities. Thus, an enterprise that has received a large loan will have a high return on assets, but if it is used ineffectively, it will very soon reach the profitability threshold and go into the red. Each type of business has its own optimal indicators that indicate its stable development.

Generally these values ​​should not exceed 30~40%. In addition, they may undergo seasonal changes, in the case of e.g. tourism business. During certain periods of the year, associated with the period of tax contributions to the budget, they may decrease, and for agricultural production they may increase. That is why the results of economic activity should be assessed both for short-term periods and averaged over long periods.

The most important goal of any commercial activity is the most productive use of funds and resources initially invested in the business or attracted during the work process. It is obvious that businessmen and investors are primarily interested in enterprises that receive more profit in proportion to the capital employed: in order to present this quality in understandable numerical terms, it is necessary to calculate profitability.

In simple words, profitability is a conditional criterion that helps determine the effectiveness of managing the resources invested in an enterprise, the return on costs associated with the manufacture and sale of products. Calculating profitability seems to be one of the main operations preceding investing in a particular company, modernizing production, improving staff qualifications and other measures that increase the costs of business owners.

What is profitability?

Analysts consider profitability indicators as parameters that allow them to assess performance with a certain degree of reliability. entrepreneurial activity. Speaking in simple words, profitability is a formula that clearly represents the productivity of using such enterprise resources in business as:

• Material and technical base;
• Possibilities of the workforce;
• Organization of supplies of raw materials;
• Organization of sales channels;
• Enterprise financial management;
• Other material and intangible resources.

Comparing profits, sales volumes and other physical indicators for companies with different sizes or specializations is somewhat incorrect: a small enterprise in some situations can be much more efficient than a giant concern with billions in turnover. Using profitability indicators, this comparison becomes more fair, since such coefficients are calculated in relative terms.

In simple terms, profitability is an example that symbolizes the return on business and demonstrates the amount of income generated for every ruble invested in a business. From an economic point of view, here you can see well-known analogies with efficiency: in the general case, the indicator is calculated as the ratio of the amount of profit to the sum of all production and non-production costs for a specified period of time. Accordingly, profitability is the proportion between a company's income and expenses.

The formula used to calculate the coefficient is quite primitive, but the obtained values ​​cannot be assessed in absolute terms. Here it is necessary to analyze the dynamics, comparing performance indicators for different periods, different external and internal conditions. Sometimes initially promising business turns into unprofitable precisely due to the incorrect use of calculated values ​​to determine critical production and sales volumes.

Why do you need to determine profitability?

Profitability should be considered one of the key indicators used to analyze the activities of an enterprise and determine the productivity of the capital invested in the business. For clarity, it is calculated as a percentage: than more value coefficient, the higher the profitability.

In what situations can this indicator be useful:

1. Drawing up a business plan. Thanks to the calculation of profitability, it is possible to draw conclusions about the quality of elaboration of all the details of the business plan and the feasibility of implementing this project;
2. Pricing. Using profitability indicators, businessmen determine the acceptable reduction in prices for products, with the goal of conquering the market or gaining competitive advantages;
3. Management. By analyzing the profitability indicators of an enterprise at different time intervals, it is possible to identify problems in the organization of business processes;
4. Income forecasting. Knowing the average profitability allows the manager to fairly accurately predict the profit of future periods;
5. Justification of the need for investment. Taking into account the amount of investment and the average profitability of a small business, investors determine the effectiveness and feasibility of the investment;
6. Determination of enterprise value. The level of profitability, combined with liquidity, determines the company's value when selling a business.

In addition, it is necessary to calculate business profitability indicators to conduct a comparative analysis with the efficiency of competitors, when attracting debt financing, before implementing any projects or mastering the production of a new type of product.

Types of profitability

A businessman who wants to get an adequate idea of ​​the current state of the enterprise must use several different profitability indicators. Thanks to their analysis, it is possible to comprehensively consider the situation, identify problem areas or business processes, and evaluate the effectiveness of using all available resources.

The following coefficients are most often calculated:

1. Sales profitability;
2. Profitability of production;
3. Profitability of certain types of products;
4. Return on assets of the enterprise;
5. Return on investment;
6. Return on equity;
7. Profitability of fixed assets;
8. Personnel profitability.

To obtain these indicators, you do not need to carry out special activities or research - all source data can be found in ordinary accounting documents. When calculating the profitability of a newly created business, statistics for a given market segment and reports published by competitors in the public domain are used.

Return on Sales (ROS)

Return on sales is the ratio of income received from the sale of all goods or services to the company's total revenue. In this way, you can determine the share of profit that falls on each ruble earned by an entrepreneur.

This coefficient is used in the pricing process and in assessing the total costs of the enterprise. However, to get an idea of ​​a company's performance, it is necessary to compare ROS with those of organizations operating in the same industry and producing similar products. You can calculate the profitability of a business in sales as follows:

ROS = (profit before tax / sales revenue) x 100%.

Sometimes for more accurate analysis The calculations use the amount of net profit, which is the final income of the enterprise minus all costs, as well as tax and loan payments.

Profitability of production

Profitability of production is the ratio of the amount of profit (gross or net) to the total amount of costs associated with the manufacture of products. By calculating this coefficient, you can estimate the share of income that the enterprise receives for each ruble spent and determine the efficiency of capital use.

Production profitability is calculated both for the company as a whole and for its individual divisions. This is how they determine the feasibility of conducting activities in one direction or another, especially if the enterprise operates simultaneously in several areas. Calculating the profitability of a manufacturing business looks like this:

RP = (profit / (cost of fixed assets + amount of working capital)) x 100%.

Return on Product (ROM)

This coefficient is defined as the ratio of income received from the sale of products to the total costs of its production and sale. This way you can estimate the share of profit that falls on each ruble invested in the cost of the product. ROM is a fairly flexible indicator that allows you to justify the feasibility of producing both the entire range of goods and individual groups, as well as specific types of products. How to determine the profitability of a particular type of product:

ROM = (profit from product sales / product cost) x 100%.

Return on assets (ROA)

This indicator clearly demonstrates the productivity of using the company’s assets to generate profit, the effectiveness of the strategy for managing the assets owned by the enterprise, and the return on investment of a business that uses its own resources. When calculating ROA, it is necessary to take into account all current and non-current assets available to the organization or attracted by it in the process of conducting business. The formula for calculating business profitability in terms of the efficiency of using enterprise resources looks like this: ROA = (net profit / average cost assets for the period) x 100%.

By regularly calculating this ratio, you can identify a non-profit-making asset and make a decision on its sale, modernization or lease.

Return on Investment (ROI)

Return on investment is the ratio of the income received during the investment process to the amount of initially invested capital. In this way, you can quite accurately determine the profit that each ruble invested in the enterprise brings. How to calculate business profitability in terms of the efficiency of using attracted investments:

ROI = (net profit + (asset sale price - asset purchase price) / asset purchase price) x 100%.

If, due to the incompleteness of the project, the final price of the asset is unknown, then when calculating, you need to take an indicator equal to its value at the beginning of the investment. An ROI greater than zero indicates the appropriateness of capital allocation, while negative values ​​indicate impending losses.

Return on equity (ROE)

The ROE ratio is defined as the ratio of a company's net profit to its equity capital. This indicator helps investors evaluate the productivity of using the company's funds and the correctness of the strategy for managing its resources. How to calculate business profitability in terms of efficiency in attracting equity capital:

ROE = (net profit for the year / equity) x 100%.

When deciding on debt financing for an organization, this ratio must be compared with the rate on a bank loan. If ROE is higher, then lending can be considered appropriate and economically justified. Otherwise, in order to avoid losses, it is better to refuse to raise funds.

Return on fixed assets (ROFA)

Calculation of the profitability ratio of fixed assets is aimed at assessing the productivity of their use in the economic activity of the enterprise. Fixed assets are considered to be all objects directly or indirectly involved in the manufacturing process of products that do not change their original form. In other words, these include:

• Industrial and warehouse buildings and structures;
• Machine tools, equipment and units;
• Trucks and loading equipment;
• Passenger cars and vehicles for transporting passengers;
• Office furniture and office equipment;
• Expensive devices and tools.

ROFA = (net profit / cost of fixed assets) x 100%.

Return on Personnel (ROL)

Personnel profitability is the ratio of net profit received for a certain period to total number employees working at the enterprise at this time. In this way, the optimal staffing of the organization is determined, allowing it to obtain maximum income at minimum costs.

This business profitability indicator can be calculated as follows:

ROL = (net profit / number of employees in the enterprise).

Along with this indicator, economists often calculate other, more informative profitability ratios:

• The ratio of employee maintenance costs to company profits;
• The ratio of the costs of maintaining any division or branch to the profit received by them;
• The personal profitability of an employee is the ratio of expenses associated with him to the income brought by the specialist to the enterprise budget.

Thus, ROL allows you to achieve the highest productivity by identifying departments and branches that need to be reduced or expanded.

Break-even point calculation

Explaining in simple words what the profitability of an enterprise is, one cannot fail to mention such an important parameter for business as the break-even point. It indicates the minimum volume of sales that is necessary to cover all costs associated with the production and marketing of products. In other words, the coefficient helps a businessman calculate the level of sales at which the enterprise will operate “at zero”, without profit, but also without losses.

The break-even point in some sources is called the profitability threshold, or break-even point (BEP). To determine the lower limit of sales volume, after overcoming which the business will begin to generate income, use the following formula:

BEP = (fixed costs) x (revenue) / (revenue) – (variable costs).

Thus, the profitability threshold is directly affected by the cost of a unit of goods, as well as fixed and variable costs at all stages of manufacturing and marketing of products. When these parameters change, the value of the coefficient immediately changes: in particular, an increase in BEP indicates problems in the process of making a profit or indicates an increase in production costs.

In addition, calculating the break-even point allows you to:

1. Assess the safety margin of the business;
2. Identify problems with the organization of business processes;
3. Determine the feasibility of investing in a project that is expected to pay off only in the next period;
4. Calculate prices when sales volume increases or decreases;
5. Determine the acceptable threshold for reducing revenue without the risk of losses.

Factors Affecting Profitability

Obviously, any entrepreneur is interested in creating a business with high profitability. However, simply calculating the main coefficients is not enough to solve this problem, since the value of each indicator is influenced by many external and internal factors.

The first include:

1. Geographical location. Regional features have significant influence on the pricing policy of the enterprise, and its distance from suppliers and consumers determines the volume of transport and storage costs;
2. Level of competition. The markup on products and the profit of the enterprise depend on the activity of competitors and the need to combat dumping;
3. Market conditions. To a certain extent, the cost of a product is determined by the general state of affairs in the industry, the purchasing power of customers and the general level of demand for a given type of product;
4. Tax policy. Obviously, the amount of tax deductions directly affects the company's net profit;
5. Political situation. Due to the influence of political factors, prices for imported raw materials change, foreign markets open or close;
6. Tariffs of counterparties. The amount of overhead costs depends on the cost of services provided to the enterprise by contractors;
7. Prices of raw material suppliers. Also, the cost of a product is determined by the prices of suppliers of raw materials and materials necessary for its production.

Among the internal factors that determine the profitability of business in Russia, a distinction is made between production and non-production.

The non-production category primarily includes:

1. Logistics efficiency. The entrepreneur's expenses depend on the correctness and efficiency of organizing the processes for delivering raw materials and finished products;
2. Marketing effectiveness. The cost of attracting one client depends on the method of advertising and the quality of advertising materials;
3. Environmental protection measures. The company's expenses may increase if it is necessary to take measures to neutralize or prevent the impact of production on the environment;
4. Working conditions. By providing employees with the necessary infrastructure, labor productivity increases, which leads to a reduction in costs;
5. Financial policy of the enterprise. The company's profit partly depends on the size of the markup on goods, raw materials or services, as well as on the availability of discounts and promotions;
6. Business reputation of the company. Supplier and customer loyalty definitely impacts a business's bottom line.

Finally, we should consider the production factors on which the profitability of small businesses in Russia largely depends:

• Volume of trade turnover. By increasing sales volume while maintaining a constant markup, the company can make more profit;
• Structure of trade turnover. The introduction of new items into the assortment leads to an increase in the number of customers by expanding the target audience, and improving the quality of the product allows you to set a higher markup;
• Organization of the sales process. To increase sales volume, it is also recommended to use the most progressive and modern marketing methods;
• Quantitative and qualitative personnel composition. Growth in production capacity depends on the availability of a sufficient number of skilled workers;
• Labor productivity. With an increase in labor productivity, the share of overhead costs per unit of production decreases;
• State of the material and technical base. A company with modern equipment can increase its turnover. At the same time, the wear and tear of fixed assets prevents this process.

How to increase profitability?

High profitability is essential competitive advantage in today's market conditions. Of course, an entrepreneur must pay attention to all factors that directly or indirectly affect the value of this indicator, including seasonal fluctuations in demand, the amount of production costs, the activities of competitors, changes in the share of defects in the total output, returns and forced downtime of the production line caused by various reasons. Listing the most common technologies used to solve the problem of increasing profitability, it should be mentioned:

• Artificial increase in profitability. When planning to increase selling prices, you need to take into account both the general situation on the market and the competitiveness of the product;
• Increased production capacity. Modernizing equipment or purchasing new automatic machines will increase production capacity and save on labor resources;
• Improving product quality. Also, modernization of technological lines can lead to an increase in the quality of the product and an increase in demand for it;
• Improving marketing strategy. Significant expansion of the target audience is achieved by choosing the most effective ways promotions;
• Cost reduction. An enterprise must constantly look for suppliers who are willing to offer raw materials, materials and services of similar quality at a lower price. Obviously, this will lead to lower costs;
• Reduced payroll costs. Large companies do not reduce their staff, but transfer it to other regions and countries where they can find inexpensive labor.

The most profitable types of business

When compiling a rating of business profitability in Russia 2018, you need to understand that in different industries Different indicators are considered normal. High values coefficients are not necessarily characteristic of the most profitable types activities: sometimes only thanks to increased profitability a company can compensate for its risks. Yes, in the area industrial production The averages look like this:

• Exploitation transport systems for oil and gas - 90%;
• Cement production - 85%;
• Production of agricultural fertilizers - 85%;
• Non-ferrous metallurgy - 65%;
• Rolled metal production - 40%.

In the field of finance and banking services, the list of types of businesses with high profitability in 2018 includes:

• Clearing services - 70%;
• Brokerage services in financial markets - 60%;
• Maintaining securities registers - 45%.

Finally, in the sphere of production of goods for the population, the following look attractive:

• Production of tobacco products - 45%;
• Beer production - 30%;
• Production household appliances - 25%.

How do you know in which business high profitability is an integral characteristic of the activity? Typically, such indicators are typical for niches in which the acceptable markup on a product is hundreds and thousands of percent. This is possible given the simultaneous presence of increased demand and low levels of competition.

Theoretically, a high markup is achievable in any business: to achieve this, one should produce or sell piece or designer goods that claim exclusivity. However, some types of products are considered high-margin due to objective reasons: with a low cost, they are extremely in demand among customers.

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What types of businesses fit this description:

• Sale of underwear. Sellers add 250–300% to the cost of goods in the mid-price segment. When selling designer and exclusive lingerie, the markup increases to 1000–1200%;
• Selling glasses. The markup on regular glasses is 300%, while frames and sunglasses are sold with a margin of up to 500%;
• Selling cotton candy. Among other types of fast food, cotton candy is characterized by the highest markup, sometimes reaching 4000%;
• Selling popcorn. The average markup on regular popcorn is 600%. When adding flavoring fillers, it increases to 1000%;
• Sale of jewelry. Mass models sell with a 300% markup. Designer Jewelry and Products self made bring the businessman up to 1000% profit;
• Coffee house. Coffee is usually sold at a 400% markup. By adding desserts, sales profitability can increase by up to 600%;
• Sale of wedding goods. They don’t skimp on wedding goods, which is what traders take advantage of, selling them at a markup of 350–500%;
• Sale of khinkali. To prepare the dish, they use affordable, inexpensive ingredients, so the markup reaches 300%;
• Flower shop. Usually flowers are sold with a markup of 200–250%, and in holidays increase it to 600–800%;
• Selling ice cream. The average margin when selling ice cream is 250%. Points in shopping centers sometimes they increase it to 600–800%;
• Pancake house. The ingredients for preparing the dish are also inexpensive, which allows you to set a markup of up to 300%;
• Smoothie bar. Fruit and vegetable drinks are positioned as elements healthy eating, so the markup on them reaches 1000%.

Conclusion

When calculating profitability indicators, it is necessary to understand that they do not always represent full-fledged characteristics of the enterprise. Thus, with long-term investing, the values ​​of the coefficients turn out to be low, so they need to be calculated for different periods and different conditions. In addition, assets usually change their value over time: accordingly, a calculation made on the basis of one-time measured parameters may turn out to be incorrect.

Finally, a single profitability ratio does not allow us to fully assess the risks accompanying the activities of a particular enterprise. To get an adequate idea of ​​the company's performance, in addition to this tool, you need to use other analysis methods - for example, calculating financial stability, studying the cost structure, analyzing management efficiency and much more.

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Any private entrepreneur faces the question: how to make his first money? Which business will bring profit rather than losses? You have a million options: you can seize several factories, oil rigs, or become an official. But let's look at the question realistically. Which one is the best profitable business in Russia? In this article we will try to briefly and concisely outline the most cost-effective options for beginning businessmen that can bring real income. Let's look at what type of earnings is the most realistic!

Turn your hobby into a profitable business!

Numerous researchers have proven more than once that 100% of all rich people achieved success because they did what they loved, devoting themselves entirely to it. This applies to all areas of business - restaurants, clothing (boutiques, shops), large factories and factories. We can conclude that the most profitable types of business are different for everyone, it all depends on your hobby. There are hundreds of types of entrepreneurship, but the easiest way to make money is through your hobbies.

Here are some example ideas:

1. Are you a sports fan? Why not create your own club or section. This option is suitable for all athletes – past and present. Groups can be formed different ages. Have you noticed that children's sections are popular now? Russian parents try to instill only good things in their children, to introduce them to sports: football, basketball, karate, even dancing.
2. Do you sit at the computer for hours? Why haven’t they started getting paid for it yet? Internet entrepreneurs are beginning to actively capture the Russian market, so they urgently need to connect while not all niches are occupied.

Here are some ideas:

• Promotion of a group on a social network (then you can earn money from advertising and promotion of other communities, stores, organizations);
• Chain store (trade everything you like - souvenirs, clothes, products);
• Information services, education (Do you know how to raise raccoons? Teach others! There will always be clients!).

1. People love unique and exotic things! Do you know how to weave toys, embroider pictures, make a Brazilian bermbau in a couple of days, or carve a Ganesh figurine? There will be more than enough clients:

• Write, embroider pictures;
• Caskets;
• Pendants and any other handmade jewelry;
• Clay products.

1. Do you have a "DSLR" ( reflex camera) and you know how to take beautiful and professional photographs? It is quite possible to become a photographer. You can work in the studio, travel to weddings, concerts, festivals. Romance, not life. You might think about opening your own studio, where you don’t have to work for your “uncle”, but take photographs for your own pleasure!

Business with minimal investment

Many aspiring entrepreneurs face the same problem - no money! That is, there is not even the minimum starting capital to start your own business. One needs $2,000 to start, the other needs 500,000 rubles! But it’s impossible to find that kind of money quickly, even if the bank agrees to the loan! So what business brings good income with minimal investment?

1. Earning money from weddings. You will have several good options:

• You open your own wedding agency and start preparing the wedding yourself - searching for a toastmaster, photographer, ordering a hall, restaurant, ceremony, cars, decorations, etc.;
• Do you have a camera? Go take photos at a wedding!
• Are you good at design and art? Start decorating your wedding halls.

1. Establish your own production. The business is very profitable, but requires good investments. But not always! Start producing your product at home if you want to make a quick income. Have you heard about American families who organized mega- profitable business Are you involved in making sauces, marmalades, cakes, cookies? They even grow all the ingredients themselves in greenhouses and seal the ketchup jars with their own hands.
2. We make money on cars. You will need: a car, a desire to earn money and the ability to organize, or knowledge and experience in repairs. If you have your own car, this is the business for you. Here are ideas for truly profitable earnings:

• Car service repair, installation;
• Cars for rent;
• Start selling spare parts:
• Have you seen the movie "Diner on Wheels"? Why not an idea? Pay for yourself quickly! You can even just drive around with a coffee machine!

Now consider which business is the most profitable for providing services and selling goods in Russia.

But what do you think is the most profitable type of business in our country? Right! Which provides people with something important and necessary. And now we are not talking about factories, plants and ships of the oligarchs. Let's give some statistics recent years: what else?

What do we see everywhere in cities? Vending machines! They are on any street. They appeared relatively recently - that’s the beauty of it. Machines that will prepare you a cup of cappuccino are no longer so popular, but in this niche there are more interesting options that attract the attention of potential customers.

Which?

Here's an example: buy massage chairs and install them in large shopping centers, on crowded streets! Install a classic bill acceptor in such a chair and maintenance costs will be minimal.

Earning money from growing plants and animals

There is no need to talk about the profitability and relevance of such a business - vegetables, meat and milk and fruits have always been and will be in demand, even in times of crisis.

There are many examples: grow seedlings, flowers, strawberries, raspberries, cucumbers, tomatoes, peppers, onions, potatoes, raise animals and birds for meat and eggs (pigs, cows, chickens, pheasants, turkeys and geese).

Your task is to decide on your niche and take it on time! You can make money on any idea! All that is required of you is efficiency, faith in your strength and actions!

To analyze and calculate the efficiency of an enterprise, a wide range of economic and financial indicators is used. They differ in the complexity of calculation, availability of data and usefulness for analysis.

Profitability is one of the optimal performance indicators - ease of calculation, availability of data and enormous usefulness for analysis make this indicator a must-have for calculation.

What is enterprise profitability

Profitability (RO – returnon)– a general indicator of the economic efficiency of an enterprise or the use of capital/resources (material, financial, etc.). This indicator is necessary for analyzing economic activities and for comparison with other enterprises.

Profitability, unlike profit, is a relative indicator, so the profitability of several enterprises can be compared with each other.

Profit, revenue and sales volume are absolute indicators or economic effects and it is incorrect to compare these data from several enterprises, because similar comparison will not show the true state of affairs.

Perhaps an enterprise with a smaller sales volume will be more efficient and sustainable, that is, it will bypass another enterprise in terms of relative indicators, which is more important. Profitability is also compared with efficiency(efficiency factor).

IN general view profitability shows how many rubles (kopecks) of profit will be brought by one ruble invested in assets or resources. For profitability of sales, the formula reads as follows: how many kopecks of profit are contained in one ruble of revenue. Measured as a percentage, this indicator reflects the effectiveness of activities.

There are several main types of profitability:

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

The universal formula for calculating profitability is as follows:

RO=(Type of profit/Indicator whose profitability needs to be calculated)*100%

In the numerator, the type of profit is most often used profit from sales (from sales) and net profit, but it is possible to calculate balance sheet profit and. All types of profit can be found on the income statement (profit and loss).

The denominator is the indicator whose profitability needs to be calculated. The indicator is always in monetary terms. For example, find the return on sales (ROTR), that is, the denominator should include the sales volume indicator in value terms - this is revenue (TR - total revenue). Revenue is found as the product of price (P – price) and sales volume (Q – quantity). TR=P*Q.

Formula for calculating production profitability

Return on cost (ROTC – returnontotalcost)– one of the main types of profitability necessary for efficiency analysis. Cost profitability is also called production profitability, as this indicator reflects the efficiency of the production process.

Production profitability (cost) is calculated using the following formula:

ROTC=(PR/TC)*100%

The numerator contains profit from sales/sales (PR), which is the difference between income (revenue - TR - totalrevenue) and expenses (total cost - TC - totalcost). PR=TR-TC.

In the denominator, the indicator whose profitability needs to be found is the total cost (TC). The total cost consists of all the costs of the enterprise: costs of materials, semi-finished products, wages of workers and administrative and management personnel, electricity and other housing and communal services, workshop and factory costs, costs of advertising, security, etc.

The largest share of the cost is made up of materials, which is why the main industries are called material-intensive.

Return on cost shows how many kopecks of profit from sales will be brought by one ruble invested in the cost of production. Or, measured as a percentage, this indicator reflects how efficient the use of production resources is.

Formula for calculating profitability on balance sheet

Many types of profitability are calculated based on balance sheet data. The balance sheet contains information about the assets, liabilities and equity of an organization.

This form is compiled 2 times a year, that is, the status of any indicator can be viewed at the beginning of the period and at the end of the period. To calculate profitability from the balance sheet, the following indicators are required:

• assets (current and non-current);
• the amount of equity capital;
• investment size;
• and etc.

You cannot simply take any of these indicators and calculate profitability - this is wrong!

In order to correctly calculate profitability, you need to find the arithmetic average of the amount of the indicator at the beginning of the current (end of the previous) and the end of the current period.

For example, find the profitability of non-current assets. The sum of the values ​​of non-current assets at the beginning and end of the period is taken from the balance sheet and divided in half.

In the balance sheet of medium-sized enterprises, the value of non-current assets is reflected in line 190 - Total for section I; for small enterprises, the value of non-current assets is the sum of lines 1150+1170.

The formula for return on non-current assets is as follows:

ROA (in) = (PR/(VnA np + VnA kp)/2)*100%,

where VnA np is the value of non-current assets at the beginning of the current (end of the previous) period, VnA kp is the value of non-current assets at the end of the current period.

The return on non-current assets shows how many kopecks of profit from sales will be brought by one ruble invested in non-current assets.

Example of calculating production profitability

To calculate the profitability of production, the following indicators are required: total cost (TC) and profit from sales (PR). The data is presented in the table.

PR 1 =TR-TC=1500000-500000=1,000,000 rubles

PR 2 =TR-TC=2400000-1200000=1,200,000 rubles

Obviously, the second enterprise has higher revenue and profit from sales. In dimension absolute indicators the effect of the second enterprise is higher. But does this mean that the second enterprise is more effective? To answer this question necessary production.

ROTC 1 =(PR/TC)*100%=(1000000/500000)*100%=200%

ROTC 2 =(PR/TC)*100%=(1200000/1200000)*100%=100%

The profitability of production of the first enterprise is 2 times higher than the profitability of production of the second enterprise. We can confidently say that the production of the first enterprise is 2 times more efficient than that of the second.

Profitability, as an indicator of the efficiency of an enterprise, more accurately reflects the real state of affairs in production, sales or investment of the enterprise, allowing you to correctly respond to the current situation, in contrast to the use of absolute indicators, which do not give a complete picture.

Video about what profitability shows: