Any enterprise in the course of business seeks to profit from their activities. The perfect formula for any business to get more income and take the minimum of resources.
To assess the activities of enterprises use a variety of economic and financial indicators: production costs, the coefficient of profitability of production, profitability of sales, turnover of funds, capital movements, and many others. For each such index has its own calculation method, for example, to determine profitability, use the formula for the profitability of the main activity of the company.
The term “yield” has German roots and means “yield”. Through the assessment of profitability is possible to draw conclusions about the effectiveness of the use of funds in the enterprise. But how to calculate profitability?
This index indicates the profit received by the producer per unit of their costs. That is, for example, if the margin is 20 %, the enterprise received the net profit of 20 rubles for each ruble, which was spent on the production of goods or provision of services. The lower the profitability, the less the business makes with one standard unit of production. The data confirms the thesis formula operating margins of the company.
Profitability is also called profitability. In fact, it is possible to determine the effectiveness and quality of management in the enterprise, calculating the profitability of your core business. The formula for calculation is given later in the article. If they are not efficiently used the resources of the enterprise, the profitability will decrease. While efficient and economical use of raw materials and other values, it will grow.
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The Formula for profitability will help to know the level of profitability by which to judge it profitable to engage in such activities or the need to restructure production in a different direction. In other words, using math we can justify the expediency or disadvantage of doing one or another activity.
The formula for the profitability of the main activity of the enterprise, which will show the result in the form of interest, the following:
REst. = ((Profit from operating activities) / (production Costs + overhead costs + Administrative expenses)) * 100 %,
Where:
To see a factor The formula for the profitability of 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 changes. For example, the formula for profitability as follows:
RAve = ((Profit from sales) / (production Cost of goods + overhead expenses for goods production + Administrative expenses for the production of goods)) * 100 %.
The First step is to consider the basic value of the return. Profitability of main activity, the calculation formula of which is shown above, can take very different values. If the ratio is below the zero values, this indicates that the company spends money to produce goods or services more than earns them the sale.
Coefficient equal to 0 indicates the breakeven point. This means that the enterprise does not make a profit, but does not incur financial losses from their activities.
If the margin is above 0, the company operates at a profit.
You Need to consider that different business areas have their own acceptableprofitability of main activity, the calculation formula which says about it. There are industries where it is necessary to cover the risks encountered by manufacturer in certain areas of its activities.
Russia is no exception. At the enterprises which are engaged in different activities, profitability can be drastically different. It is not always the company with lower profitability will be less successful. This is for a number of reasons related to the turnover of capital and other features of functioning of enterprises in various sectors of the economy.
So, in the industries of building materials, as well as those that have a high conveying capacity in other countries, the average profitability are as follows:
In the sphere of banking and financial institutions observed the following indicators in Russia:
The Production of goods that are consumed by the population, has the following profitability indicators:
Despite the fact that the formula of profitability of the core business is fairly simple and straightforward, the final figure can not look straight.
Methods of cost-benefit analysis there are many, that characterizes a wide range of different types of its indices.
First of all, it is important to evaluate and compare sales volumes of different periods, and also to track the profitability of those periods. Very often when a good and promising business becomes unprofitable because of an incorrect approach to estimating the necessary volume of production and sales of goods and services.
For example, the manufacturer of any product wants to increase profits not by reducing production costs and by increasing output.
The formula for the profitability of production thus the output will show that the profitability can be significantly impeded or even be negative. What is the reason? A lot of factors. There is always a probability of loss of markets or their volume failure. Can deteriorate connection with the sellers or simply the produced production volume does not need to market, because the demand is limited. In simple words, if there is nobody to sell the product, why it does not need to produce. In the case of excess production, the goods will simply be lying in warehouses and rot.
You should Also consider the rate of capital turnover. For the first example, you need to analyze the time between initial purchase of raw materials and the point when the manufactured products received money. It will be a full production cycle. The profitability of product 1 may be, for example, 50 %. If the product is large and production capacity is limited, the real profit may be too small to pay all current expenses. That is, the level of profitability at 50% may not testify about the success of the enterprise, but simply to characterize the specificity of the industry and production methods.
Of Course, profitability is one of the most important indicators which make it possible to analyze the efficiency of the company and to make any conclusions about the production process itself.
Analyzing the activity of any enterprise is not enough just to know how to calculate the profitability of the core activities, you need to remember about other indicators, as well as the diversity of economic research. You cannot remove the profitability of a system of indicators, in which it is included. This financial stability, liquidity, and solvency etc. in addition, it is necessary to conduct horizontal and vertical analysis of the balance of enterprises to use financial indicators, such as turnover of capital, movement of assets.
Only in this way can we fully assess the profitability ratio to determine the preconditions and ways of its effective increase.
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Alin Trodden - author of the article, editor
"Hi, I'm Alin Trodden. I write texts, read books, and look for impressions. And I'm not bad at telling you about it. I am always happy to participate in interesting projects."
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