Due to the current situation on the world market and the instability of the economy as a whole, the owners devote more and more time to analyzing the activities of their enterprises. With the help of such an analysis, it is possible to objectively assess the company's solvency, efficiency and profitability of its activities, as well as development prospects. For cost reduction and company management, the most effective indicators are profitability.
Instructions
Step 1
The most significant indicator that you can calculate when assessing the profitability of a business is the return on equity. The owners of the enterprise receive the return on their investments in the form of contributions to the authorized capital. In exchange, they are entitled to a corresponding share of the profits. Therefore, from the point of view of the owners, the return on equity is the most important indicator of the company's activity, since it characterizes the amount of profit that the owner will receive from each ruble of the invested funds.
Step 2
Another indicator that characterizes the efficiency of the enterprise is the asset turnover. It reflects how many times during the period the capital invested in the company's assets is turned over. This indicator characterizes the intensity of the use of all assets, regardless of the sources of their formation. In addition, the asset turnover shows what part of the proceeds the company receives from each ruble of funds invested in assets. An increase in this indicator indicates a more efficient use of them.
Step 3
Use the return on sales as the main indicator of the performance of enterprises with relatively small amounts of fixed assets and equity. It is defined as the ratio of profit from product sales (operating profit) to sales volume (revenue) for a certain period. Return on sales shows how much net profit the firm receives from each ruble of products sold, or how much money remains at its disposal after covering the cost, paying taxes and interest on loans.
Step 4
You can use the return on assets indicator to measure the performance of your operations. It is the main production indicator that reflects the effectiveness of the use of investment. Return on assets is defined as the ratio of net profit and average asset value for a certain period. It depends on two factors: profitability of sales and asset turnover.
