Profitability is one of the main indicators characterizing the efficiency of the enterprise. It indicates the level of return on costs and the degree of use of capital and assets in the process of production and sales of products.
Instructions
Step 1
To assess the level of profitability, there is a system of indicators. Among the most important and frequently used metrics is product profitability. It is calculated as the ratio of profit from product sales to its total cost. This ratio reflects the amount of profit that the company receives from each ruble invested in the production and sale of goods, works, services. It is most often used in on-farm settlements in order to control the profitability of certain types of products.
Step 2
Return on sales is defined as the ratio of profit from product sales to revenue. This indicator characterizes the level of sales of goods and services, and also allows you to estimate the share of cost in sales. Keep in mind that there are many factors that affect your ROI. The decrease in this indicator is due to two main factors: an increase in costs for production and sales of products, as well as a drop in sales volumes. In the first case, it is necessary to carefully analyze the structure of the cost of production, highlighting the most significant items and the possibility of reducing them. In the second case, you should focus on promoting the product to the market, its quality characteristics.
Step 3
Another indicator of a company's profitability is the return on assets. It is calculated as the ratio of income (return) to the value of active assets. This indicator characterizes the amount of profit received by the enterprise from each ruble advanced for the formation of assets. Return on assets reflects the measure of the company's profitability in the period under review.
Step 4
When analyzing the profitability of an enterprise, the return on equity is determined. The return on equity is the most important metric from the point of view of shareholders. It is calculated as the ratio of the company's profit to the amount of equity capital. The return on invested capital shows the efficiency of the use of capital invested in the development of the enterprise. The value of this indicator is very important for third-party investors.
