An indicator such as the net profit received by an enterprise from the sale of goods produced by it or provided services, in itself, can say little about the success of this enterprise. After all, both a large enterprise and a small one can have the same profit in the production of the same product. Therefore, in this case, profitability is used as an estimated indicator that makes it possible to obtain an objective assessment of the company's performance.
What is profitability
Profitability is an objective indicator reflecting in general how a given enterprise effectively uses labor, material and monetary resources, carrying out the production and sale of goods or services to end consumers. This indicator of the economic efficiency of the enterprise is relative, it is expressed as a percentage. Profitability is determined as a result of the ratio of gross or net profit to the sum of all costs for goods or services sold.
By how high is the profitability of the enterprise, one can judge how much its production costs are recouped, how effective its pricing policy is and how much it is able to control these costs. If we simplify its calculation as much as possible, profitability can be represented as the ratio of net profit to cost. The lower the cost, other things being equal, the higher the profitability.
This indicator, to a much greater extent than profit, characterizes the economic activity of the company, since it represents a clear relationship between the economic effect obtained and the resources used. Ultimately, profitability depends on the area of production in which a given enterprise operates, since it will be different for different types of economic activity due to objective reasons.
What should be the indicators of profitability
This issue worries not only entrepreneurs, but also the tax authorities, whose task is to control that enterprises do not underestimate the profit shown for the report and, thereby, do not reduce the tax burden. Therefore, for several years now, the Federal Tax Service has been making calculations of the "normative" profitability for enterprises in all sectors of the economy.
The tables on the FTS website indicate the return on sales and return on assets. The first indicator is the ratio of net profit (profit minus losses) and cost price. The second is the ratio of net profit and assets of enterprises. The latest calculations are based on data for 2012. According to them, the return on sales of an average Russian company was 9.7%, and its assets - 6.8%. As for the types of economic activities, one of the most profitable is mining, where the profitability of production reaches 50%, and assets - 16%. The profitability of fishing, for example, is 21.4%; food production, including drinks and tobacco - 11.1%; textile and clothing production - 12.3%.
