Any commercial enterprise exists for one purpose - making a profit. However, obtaining a positive result does not show the efficiency of the enterprise. More informative is profitability.
Instructions
Step 1
The actual amount of net income does not indicate whether this is a good result at the present value of fixed assets and costs. Profitability is a calculated relative indicator that expresses as a percentage the efficiency of using monetary assets both for the enterprise as a whole and for individual components. Its actual value is a key role in solving the main issues of the functioning of the enterprise: both about the volumes of fixed and variable costs, and about pricing.
Step 2
The term “profitability” can be applied to various components. The main indicators are the overall profitability, the profitability of current assets, fixed assets, use of personnel, equity capital, assets, sales, production, fixed assets, products, production assets, financial investments. The formulas for calculating these indicators have similar logic, but differ in the sums that make up the divisor and the dividend of the fraction in the formula. Determine the effectiveness of which means you need to find out. Search the search engine for the formula for the metric you are interested in.
Step 3
Examine what metrics are used in the formula. Search the search engine for the exact articles and their constituents. With high accuracy, collect information about the figures of interest for the activities of your company on the basis of documents on the financial results of activities and the cost of fixed and current assets. Calculate the profitability indicator using the appropriate formula.
Step 4
It is conventionally considered that the rate of total profitability of an enterprise should be at least twenty percent. This largely depends on the size of the enterprise. For a stable position and further development of medium and small businesses, this figure is higher and amounts to at least forty-five percent.
Step 5
It makes sense to calculate the profitability of production in dynamics, considering the indicators for the month, quarter and six months. Compare indicators from different periods and maintain a dynamic range of indicators to improve the quality of analytical analysis.
Step 6
It is worth noting that the issue of measuring profitability is complex and multifaceted for presentation in such a short article. Start serious calculations only after studying professional literature on enterprise economics and business analysis.
