Unlike profit, which shows the result of entrepreneurial activity, profitability characterizes the effectiveness of this activity. Profitability is a relative value that expresses the profitability of an enterprise. In a market economy, there is a system of profitability indicators, its price for products is calculated for individual types of products and for all products sold.
Instructions
Step 1
The profitability of all products can be determined by the percentage of profit from the sale of goods to the cost of production and sale. Or by the ratio of net profit to revenue. The result gives an idea of the cost effectiveness of the enterprise in the current time and the degree of profitability from the sale of products.
Step 2
The profitability of certain types of goods depends on the total cost and price, and is determined as the percentage of the cost of selling a unit of production minus the total cost to, again, the cost of a unit of this product.
Step 3
The increase in profitability is achieved by increasing the amount of profit and by reducing production assets. From the point of view of using the production potential of the company, the analysis of profitability is of great importance for the complex characteristics of the activity.
Step 4
Enterprises that manufacture products independently determine the size of profitability and the price of products, with the exception of only some types of activities: the provision of funeral services, various types of transportation. For these types of activities, government agencies have established marginal levels of profitability.
Step 5
When setting the price level in market conditions, enterprises are forced to focus on market prices if the manufacturer is not a monopolist. Therefore, the possibilities in determining the value of profitability are limited.
Step 6
In order to increase the amount of produced and sold products, it is necessary to include a low profitability in the price, then the price level will be lower than that of competitors. And in this case, the manufacturer gains an additional advantage in the market, and sales growth increases dramatically. And with an increase in the scale of activity, the average cost price decreases due to the distribution of fixed costs for an increased number of products. As a result, a large amount of profit is formed due to a faster turnover of funds.
