Determine the return on investment to assess the efficiency of production

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2019-02-11 01:00:21

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Every company, existing on the market, unique. One measure of this is the fact that all organizations in varying degrees effective, and even if they get the same profit, this does not mean that they are equally efficient and profitable. More objectively, it can be judged based on cost-benefit analysis, that is, the relative level of profitability. Agree, for the same amount of profit, the profitability of cargo is likely to differ from profitability of any commercial or industrial enterprise.

The Profitability of enterprises cannot be determined using any one indicator. The organization is very diverse, therefore, indicators to assess its effectiveness quite a lot. However, the activities of any company related to the cost of production of the product (or the provision of services, execution of works, but essentially it does not change). In this regard, it would be logical to elaborate on the indicator of profitability of expenses.

In General, the profitability indicators calculated by the exchange value of profits to the value of, the profitability of which is determined. Therefore, the return on investment is determined by dividing revenues by costs, to be submitted cost of production. Despite this simple description, the calculation of this indicator can cause some difficulties. The fact that profit and cost can be defined in different ways, and for more accurate calculation you need to make the right choice.

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Let's look at what indicators are included in the profitability of costs incurred to manufacture products, as well as its subsequent implementation. Most often, the profitability is evaluated in terms of net profit, but in this case its use is likely to be a mistake. This is due to the fact that net profit is subject to change under the influence of the activities of the company, which is not associated with the production and sale of products. Thus in a more suitable indicator of the profits from sales.

As for cost, here too not all so is simple. If we want to determine the profitability of costs on manufacture and realization, we must include in the calculation of such cost, which takes into account not only production costs, but also other associated with implementation. In this regard, the increased cost of production to use will not work, but the full measure cost is the best option.

So, collecting the figure together, we get that the profitability cost of products sold is determined using the ratio of net profit to figure the total cost of production, which was implemented. And  what is the economic meaning of calculated values? It is obvious, is how much profit you can get from each ruble, which generates cost of production and selling products, services or works. Remarkably, this figure describes not only the production efficiency but also the effectiveness of marketing activities. And therein lies its value.

None of the indicators of profitability is not restricted to any standard values. The reasons for this are clear, as all businesses are different and very high profitability for one of them may be a critical level for the other. On this basis, the cost-benefit analysis are often carried out by examining the changes in the indices over time, that is, determine their dynamics and trends. Additionally, the often used comparison with the enterprises-analogues, and indicators specific to the industry as a whole.

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