The rate of return is an indicator that is defined as the percentage ratio of profit over a certain period of time to the capital advanced at the beginning. In this case, they talk about the rate of return on assets or investments. With the ratio of profit to the costs necessary to obtain it, the rate of return is obtained.
Instructions
Step 1
In other words, this indicator reflects the increase in capital (production assets) that was invested in the manufacture of goods and services. At the same time, the advanced funds include the costs of production and wages of workers. Usually the rate of return is calculated on a yearly basis.
Step 2
Such a coefficient clearly characterizes the activities of the firm. The rate of profit is determined by two groups of factors: internal production and market. The main factor that determines it is the mass of profits. Anything that leads to an increase in the latter will not affect the degree of profitability of the business.
Step 3
The rate of profit also depends on the composition of funds advanced into production, in particular on the proportion of workers' wages. Suppose two enterprises have invested the same amount of money in production, but one of them has spent more money on hiring labor. Then it is here, provided that other factors remain unchanged, that more profit will be obtained, which means that its rate will also be higher.
Step 4
The annual rate of return also depends on the rate of turnover of funds used in the production process. With an increase in the turnover rate, the spent money is returned to the business owner faster. In this case, production volumes increase, profit increases, and, consequently, the efficiency of the firm's activities.
Step 5
The increase in the indicator we are considering is facilitated by the cost savings on means of production. You can save them by using progressive technologies, increasing the number of work shifts per day. As a result, production costs are reduced, which increases the firm's profits.
Step 6
The rate of return also depends on price fluctuations in the market and on the macroeconomic state in general. Its functional purpose lies in the fact that monopoly firms use this indicator to establish and regulate prices. On the other hand, for society, the rate of profit regulates the relationship between supply and demand, in cases where this coefficient does not differ much in different industries.
