Profitability is understood as the profitability of entrepreneurial activity or the activity of an enterprise as a whole, as well as its individual components: production and sale. When it comes to the profitability of an industry or business, we mean the efficiency of its functioning, profitability.
Instructions
Step 1
It is known that profit is an important indicator of an enterprise's performance. But it does not provide an objective assessment of the business, it does not allow comparing the work of several companies. The profitability indicator makes it possible to assess the performance of an organization more accurately. When talking about the profitability of a business, they mean how profitable and attractive it is for investors.
Step 2
If the profitability of goods is assessed, then the ratio of the amount of profit received from the sale to the costs of its production and sale is determined. When calculating the profitability of production as a whole, payback is determined, i.e. the ratio of the amount of profit to production costs. The latter include depreciation and repair of equipment, production facilities, wages to workers who manufacture products, etc.
Step 3
Profitability indicators are usually calculated in aggregate. There are several types of profitability. All of them are combined into three main groups: profitability of production, products and capital. The profitability of production as a whole is usually divided into general and calculated ones. The total profitability of production is the ratio of profit to the average annual value of the assets of the enterprise. The estimated profitability is calculated by the ratio of profit less obligatory payments, contributions to funds and payments for bank loans to the average annual value of assets.
Step 4
Product profitability is the ratio of profit to cost. It shows how much profit the company will receive for each unit of invested costs. Return on equity is the ratio of net profit to the total amount of advanced funds (equity or borrowed capital).
Step 5
Any enterprise is interested in increasing profitability. For this, such activities are carried out as increasing the volume of production and sales of products, improving its quality, reducing costs, building an effective pricing system, introducing new industries and technologies, etc.
