How to calculate the profitability of the organization

Increasing profitability - this is the main task of the enterprise. In the fierce competitive world it is very important to bring business structure to a minimum percentage of return. This requires economic Outlook and knowledge of how to calculate profitability.

When the company for a certain period of time receives proceeds, this amount includes all depreciation expenses, purchase of raw materials, salaries, utilities, etc. Therefore, it should be noted that it is important to know how to calculate the profitability of the company. This will allow you to have an edge over the competition, unlock the full potential of the organization to earn a fairly substantial amount of profit. Subtracting all the expenses from the total revenue, you can obtain the profit of the enterprise, which is expressed in monetary terms.Starting from the importance of this knowledge and having great ambition of the enterprise, consider the essence of the question of how to calculate profitability. That is the bottom line that shows the efficiency level of the enterprise. But if the profit can count even the inexperienced novice economist, to understand how to calculate a return sometimes difficult even to the wise head of the company. 

There are two profits: gross and net. Before you can calculate the profitability of the enterprise, you need to know his profit. The difference between net revenue and cost is the gross. Well, if you take away all the expenses of the enterprises (amortization, taxes, lease) of the gross profit that it will turn a net profit.

First and foremost, profitability is the main indicator of the performance of all activities of the enterprise, and it is expressed as a percentage (although you can consider it a factor). We consider several variants of indicators: return on assets, sales, main activities, equity etc.

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To obtain the benefit / cost ratio, it is necessary to divide the profit of used assets, and the resulting answer multiplied by 100%.

Consider a couple of options for how to calculate profitability. In order to know the coefficient of profitability of assets, you need to make the division of net profit by the number of assets per year. In order to calculate the return on equity, we need net profit divided by the total amount of equity.

In addition, it is important not only to monitor and calculate the profitability of the whole enterprise. A very significant factor is what keeps afloat the organization itself – its resources. Whether to buy new products? Leave the same price or lower if demand falls? How to reduce cost without loss of quality? These and many other questions connected with the organization and evaluation of the use of company resources. And then you should also approach the question how to calculate the profitability of products  seriously.

Profitability is another indicator of the enterprise. You can calculate it as, in General, in all of sales and individual items. Consider the first option. The ratio of profit from sales to expenses for its manufacture and sale. There are other ways of calculation of profitability, for example: calculating the ratio of profits from sales of commercial products to revenue from the realized product; the calculation of the ratio of balance of profit to revenue from sales of products. All indices show the effectiveness of the company's costs for raw materials and revenue of products sold.

Consider the second option. The benefit / cost ratio of individual items of production in this case depends on the cost at which products will be sold  to the consumer, and its cost.

For a successful business the founders of the company must know the effectiveness of their organization. It is therefore important to know and be able to calculate the profitability of the company.