Profit and profitability are the most important economic categories, indicators of the effectiveness of economic activities. Profit, as you know, is the excess of income over expenses (in monetary terms), that is, it is the profit that shows whether it is profitable to carry out any activity or not.
Instructions
Step 1
So, first of all, let's figure out what profit and profitability are. Profit is the monetary expression of the final financial result of the enterprise, and profitability is a relative indicator that also reflects the financial result.
One of the main theories explaining the appearance of profit is the theory of surplus value, developed by K. Marx. Marx says that surplus value, which is transformed into revenue after the act of sale, is created precisely at the stage of production by a specific commodity “labor power”. Surplus value is the value that is created by the labor of the wage worker above the value of his labor power (i.e. wages) and is appropriated by the capitalist.
However, profit is not equal to surplus value, because part of it goes to pay salaries to employees, as well as to cover other costs: interest on loans, taxes, rent. Therefore, profit is called a converted form of surplus value.
Step 2
Distinguish between gross (total) and net profit (the amount remaining after covering the costs and paying the necessary taxes and deductions).
Gross profit is calculated as follows:
Gross profit = Net income from sales of goods and services - Cost of goods or services sold
Net profit is calculated as follows:
Net profit = Gross profit - The amount of production costs - The amount of taxes, fines and penalties, interest on loans.
Step 3
Profitability is a relative measure of business performance (%). The profitability ratio is calculated as the ratio of the profit received to the assets (resources) that form it.
There are many indicators of profitability: return on fixed assets, return on assets, return on equity, return on sales, return on production, etc. Let us consider the last two indicators in more detail.
Return on sales shows the share of profit in each earned currency unit and is calculated:
Return on Sales = Net Income / Sales Volume
The profitability of production shows how many monetary units of profit the company receives from each monetary unit spent on production and sale. Calculated:
Profitability of production = Profit from sales / The amount of costs for the manufacture and sale of products.
