How To Analyze The Profitability Of Production

Table of contents:

How To Analyze The Profitability Of Production
How To Analyze The Profitability Of Production

Video: How To Analyze The Profitability Of Production

Video: How To Analyze The Profitability Of Production
Video: Profitability Analysis | Principles of Accounting 2024, March
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Profitability is an indicator that determines the level of profitability of a business. Profitability reflects the final results of financial and economic activities, since the value of this coefficient characterizes the ratio of the effect to the available or used resources.

How to analyze the profitability of production
How to analyze the profitability of production

Instructions

Step 1

Determine the profit from the sale of products for the analyzed period. It is usually calculated based on the results of work for each quarter and for the year.

Step 2

Calculate the cost of production and sales of products. This data is reflected in the "Profit and Loss Statement" of the organization.

Step 3

Calculate the indicator of profitability of production according to the formula - P = P / (Zp + Zr), where:

- P - profit from the sale of products, - Зп - production costs, - Zr - the cost of selling products.

The resulting coefficient shows how much profit the company has from each ruble spent on production and sales.

Step 4

Calculate using this formula the profitability for each division of the enterprise and for the types of products. The initial figures for the calculation are taken from the data of analytical accounts of accounting.

Step 5

Calculate the profitability of production using planned data for the year and quarterly. Calculate the profitability of production for the previous period. Bring the indicators for the previous period to a comparable form by multiplying them by the price growth index.

Step 6

Compare the resulting profitability ratios. The greater the profit of the sold products, the higher the profitability of production and the higher the economic efficiency of the production activity of the enterprise.

Step 7

Examine what factors influenced the profitability indicators of the enterprise as a whole and separately taken divisions. Determine, at the expense of what reserves you can increase the profitability of production of the enterprise and divisions: by increasing the rate of profit growth, or by reducing the growth rate of costs for production and sales of products.

Step 8

Also analyze the factors that influenced the level of profitability for each type of product. This analysis will reveal the inefficiency of the work of some departments or the inefficiency of the production of some types of products.

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