The Concept Of Profitability

The Main indicator that characterizes the economic activity of the enterprise is profit. The concept of profitability is related to the relative expression of these indicators. Profitability shows the effectiveness of the enterprise.

It is the profitability indicators provide information for conclusions about the level of production development and efficiency of the business entity. Production control the required mapping of the economic performance (in the form of profit) costs, which made it possible to achieve these results.

The Concept of profitability related to self-supporting operations. This is one of the indicators characterizing the profitability or, conversely, loss-making enterprises in the production activities for any time period (year, quarter).

The Concept of profitability and its types can be defined in the following way.  It includes the following major groups: profitability of production, capital and the actual production.

Profitability distinguish the General and estimated. General means the ratio of profit on the balance cost (average) fixed assets and working capital. Design – is the ratio of profit balance sheet net of fixed fees, fees for the funds and Bank loans-to-value (average) of fixed assets and working capital.

Profitability is the ratio between profit received from realization of products, production costs, and the cost excluding direct material costs.

Return of capital Is determined by the ratio of the result of current activity for a certain period of time (retained earnings) to your existing enterprise main and circulating assets (funds).

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Every company interested in increasing profitability. The main factors that are improving product quality, reducing the cost and losses of manpower and material resources, a more productive use of equipment etc. To improve profitability it is necessary to improve the self-financing ratio at the enterprise, to respect the reasonable economy. This is especially important when translated into terms of self-financing.

To enhance the profitability of the enterprise resort to such measures as the increase in production and sales of products, improve product quality, implementation of scientific and technical developments, improve pricing and control system of production processes, increasing the efficiency of resource use on the basis of perfection of system of payment relations and mutual settlements. Opportunities for implementation of these directions must always be analyzed by specialists.

The Concept of profitability determines the quality performance indicator  output, he demonstrates a level of impact of implemented costs and shows the degree of use of investment in the production and implementation of products.

Calculation of profitability is made using a system of indicators: profitability, sales, production, equity funds, long-term financial investments investment assets. These indicators are used in the analysis of business activity to identify ways of improve efficiency in key areas of the enterprise. Separate indicators are used to determine the creditworthiness of borrowers.

The Level of profitability of the enterprise – is the ratio of gross profit to the amount of fixed and current assets which are at the disposal of the enterprise.