Profitability is one of the key indicators that must be taken into account when calculating the effectiveness of project implementation. At the same time, depending on the conditions for its implementation, the procedure for assessing profitability may be different.
In general, the profitability of a project is usually understood as an indicator reflecting the efficiency of using the resources necessary for its implementation.
Profitability ratio
To assess profitability, there is a special indicator called the profitability ratio. It, in turn, represents the ratio of the profit received as a result of the project implementation to the amount of resources spent on it. At the same time, depending on the type of resources, the profitability of the use of which must be calculated, different indicators are usually used, differing from each other in the procedure for making calculations.
The main types of profitability ratios
A significant part of the methodology for calculating profitability, which is currently used in Russia, is borrowed from the English-language literature. In this regard, a fairly common way to designate various types of coefficients is to use abbreviations made up of the first letters of English phrases denoting a particular indicator.
Depending on the specific tasks facing economists in this case, they may need to calculate the profitability of using a particular type of resource. The main types of coefficients that allow you to make the necessary calculation include:
- profitability of sold products (ROM) - an indicator showing the ratio of the profit received from the sale of a product and its cost, that is, the total cost incurred by the enterprise in the process of its implementation. ROM = (profit / cost) * 100%;
- profitability of fixed assets (ROFA) - an indicator showing the ratio of profit from the project implementation and the cost of used fixed assets. ROFA = (net profit / cost of fixed assets) * 100%;
- return on sales (ROS) - an indicator showing the ratio of profit received from sales and total revenue. ROS = (operating profit / revenue) * 100%;
- personnel profitability (ROL) - an indicator showing the ratio of the profit received by the company to the total number of its personnel. ROL = (net profit / average number of employees) * 100%;
- return on assets (ROA) - an indicator showing the ratio of net profit to the total value of assets used in the implementation of the project. ROA = (net income / total assets) * 100%;
- return on equity (ROE) - an indicator showing the ratio of net profit and average equity for a certain period of time. ROE = (net profit / average equity) * 100%;
- return on invested capital (ROIC) - an indicator showing the ratio of net profit and average borrowed capital for a certain period of time. ROIC = (net profit / average borrowed capital) * 100%.
In addition to those listed, to calculate profitability in some cases, other coefficients can be used, for example, profitability of production, profitability of net assets, and others.
