When analyzing the efficiency of an enterprise, one of the main places is occupied by profitability. It represents such a use of financial and material resources in which the enterprise makes a profit when all costs are covered.
Instructions
Step 1
When analyzing the profitability of an enterprise, a number of coefficients are calculated. The most important indicator here is the return on assets. It is defined as the profit remaining at the firm's disposal divided by the average asset value. By the level of this indicator, one can judge the profit that the enterprise receives from each ruble advanced into assets.
Step 2
The profitability of products, or the profitability of production activities, is defined as the ratio of the profit remaining at the disposal of the enterprise to the total cost of goods sold. Instead of net profit, when calculating this indicator, profit from product sales can be used. Product profitability shows how much profit the organization receives from each ruble of costs invested in production and sales. This indicator can be calculated both for the enterprise as a whole, and for its individual divisions or types of products.
Step 3
Another indicator of profitability is the return on sales. It is calculated as the ratio of the organization's profit from the sale of products to the sales proceeds. This indicator gives an idea of the share of profit in the volume of proceeds from sales. The return on sales is also called the rate of return.
Step 4
The level of return on investment expresses the efficiency of using the funds that have been invested in the development of a given enterprise. This indicator is calculated as the ratio of profit before tax to the balance sheet total minus short-term liabilities.
Step 5
A significant place in the analysis of profitability is occupied by the return on equity. It is defined as the profit remaining at the disposal of the enterprise divided by the amount of equity capital. If we compare this indicator with the level of return on assets, then we can conclude about the effectiveness of the organization's use of financial leverage (loans and borrowings) in order to increase the level of profitability.
