Determining the amount of profit is one of the main tasks of economists performing financial analysis. The income received by the enterprise is the result of its activities, positive or negative.
It is necessary
balance sheet
Instructions
Step 1
Making a profit is the main incentive for work and, in fact, the goal of any businessman. The desire to increase revenue from product sales forces entrepreneurs to take various measures to reduce costs, reduce transportation and advertising costs, etc. At the same time, it is necessary to take into account the situation in a particular market niche, monitor demand trends and adapt production to new norms and standards.
Step 2
You can determine the amount of profit according to the balance sheet. To do this, there are two approaches, the difference between which is related to the methods of calculating costs. Accounting and economic profit differ in that the second value takes into account the so-called implicit production costs:
BP = SD - YI;
EP = SD - (YI + NI), where BP and EP are accounting and economic profit, SD is total income, YI and NI are explicit and implicit costs.
Step 3
The basis for calculating profit is the total income of the enterprise, which is equal to the proceeds from the sale of products in the corresponding market niche. The product is rarely homogeneous. As a rule, manufacturers present consumers with an assortment of three or more items. Therefore, it is better to find total income using a formula that takes this diversity into account:
СД = Ц1 • K1 + Ц2 • K2 +… = Σ Цi • Ki, where Ц and K are the price and quantity of each type of goods.
Step 4
Costs are the costs of producing and selling products. They add up the cost of goods, which is the basis for the formation of the future price. The amount of profit depends on them, i.e. part of net income remaining after covering all expenses.
Step 5
Actual or explicit costs are costs reflected in the balance sheet as account entries. These include payments to suppliers for raw materials and materials, salaries, taxes, intellectual developments, as well as services of a different nature (financial, legal, informational, transport, etc.).
Step 6
Implicit costs represent alternative income that could have been brought to an entrepreneur or a group of founders by another order or other type of activity. This value includes lost earnings, rental income for renting out the premises of the company, interest on the deposit if the capital was placed in a bank, etc.
Step 7
The profit formulas show that economic profit differs from accounting profit by the volume of implicit costs. If the second type of profit is official, documented, then the first is more useful for financial analysis. It is important that the result of the economic approach to calculating profit is positive. This means that the company makes the most efficient use of the resources at its disposal.
