Profitability is most often equated to an indicator of the efficiency of an enterprise, that is, to the ratio of net profit to net costs. However, in practice, the calculation of profitability indicators is aggravated by a number of reasons and additional parameters.
It is necessary
Calculator, notebook and pen, accounting documentation for the activities of the organization
Instructions
Step 1
Determine the indicator of profitability (efficiency) of production activities. Otherwise, this indicator is called balance sheet profitability: Profitability = The amount of balance sheet profit / (Average cost of working capital + average cost of fixed assets) * 100% According to this formula, the indicator will be slightly overestimated, since the balance sheet reflects the profit from all activities of the organization, and not only from the production process. Therefore, the indicators of the return on total assets and the return on equity are considered.
Step 2
Calculate your return on total assets. This parameter shows the efficiency of using the organization's own property and is calculated according to a certain formula: Profitability = (Balance sheet profit / Amount of balance sheet assets) * 100%.
Step 3
Calculate your return on equity. This parameter is an indicator of the efficiency of using the capital invested in the organization and is calculated using a special formula: Profitability = (Net profit / Amount of equity capital) * 100% This indicator is usually of interest to shareholders and investors.
Step 4
Calculate the profitability of your product. In order to calculate the profitability of a product as an indicator of the effectiveness of the cost of selling or manufacturing a product, you need to use the following formula: Profitability = (Profit from sales of products / Total cost of production) * 100%.
Step 5
Calculate your ROI. Return on sales is an indicator that characterizes the cost-effectiveness of selling a product. For its calculation, the sold products are used) * 100%.
