The calculation of the threshold of profitability is one of the aspects of analyzing the profitability of an enterprise in terms of attractiveness for third-party investors. This value can be presented both in kind and in monetary terms.
Instructions
Step 1
The financial condition of an enterprise is assessed by many indicators, one of which is the profitability threshold. This value is equal to the volume of sales in units of goods or in money, at which the company covers all costs, but does not make a profit.
Step 2
The threshold of profitability is of great interest to a potential investor, since it carries information about the degree of stability of the enterprise, its ability to extract maximum profit by optimizing production. Based on this, the appraiser forms an opinion about the company's ability to pay dividends and interest on a loan.
Step 3
The indicator is calculated both in physical terms and in monetary terms. Accordingly, there are two formulas for calculating this value: PRd = B * Ppost / (B - Pper), PRn = Ppost / (C - ZSper), where: PRd and PRn - the threshold of profitable cash and natural (in pieces of goods), V - revenue, Ppost - fixed costs, Pper - variable costs, P - unit price, ЗСпп - average variable costs.
Step 4
It is necessary to give a few explanations about the constituent values of the formulas. Fixed costs are costs that are constant, independent of the volume of sales and the direction of its change (growth / decline). The amount of variable costs is directly proportional to the volume of sales and changes with it. Average variable costs are the same amount per item.
Step 5
The formulas show that when calculating the profitability threshold in physical terms, this indicator is equal to the ratio between fixed costs and the value by which the price of a piece of goods exceeds the unit variable costs. Those. we can say that if these indicators coincide, a break-even point will come, when the company does not incur losses, but does not make a profit either.
Step 6
The monetary indicator takes into account the amount of revenue, this is the ratio of the coverage values for both types of costs. Such a threshold of profitability is more attractive for a potential lender, since it makes the conclusions about the financial return of the enterprise more evident.
Step 7
In order to improve the efficiency of the analysis, economists prefer to build graphs on which the lines of all indicators are reflected. The coordinate axes in this case represent the volume of goods and profit, respectively. The profitability threshold is reached when the income curve crosses and goes above the line of total costs.
