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The profitability indicator for any type of production is general and shows it. After all, a sufficient level of profitability indicates the level of profitability of the enterprise, its profitability. In this regard, increasing the profitability of the enterprise is a key area of ​​activity to optimize costs and increase income.

How is profitability calculated? The calculation of profitability is carried out by comparing the volume of gross income or profit of the enterprise with the production costs incurred or the volume of resources used. By analyzing the average level of profitability, you can determine which products and which divisions of the enterprise provide the required level of profitability, and which are unprofitable. This information in a competitive market economy is very important, because financial indicators directly depend on the concentration and specialization of production.

Increasing the profitability of an enterprise in a situation of increase is a primary task.

As you know, the main source of free enterprises is from the sale of manufactured products. In this regard, the key activity of the entity is to increase the profitability of production by reducing costs and observing savings regimes, as well as the effective use of resources available to the enterprise.

These include:

Maintaining an optimal number of working personnel;
- reducing costs for units that are related and do not participate in production;
- constant work to improve the level of qualifications of workers, through which labor productivity will improve, ahead of the average;
- use of progressive payment systems, increasing the interest of workers in improving productivity;
- automation of production processes, which reduces labor costs;
- increasing work motivation.

Reducing overhead costs for operating and managing the production process is also essential. This is facilitated by an increase in production volumes through reconstruction, technical renovation of the enterprise, reducing the size of the administrative and management apparatus and support services, as well as by improving the production management process.

The term “profitability” is usually used in the meaning of “yield” or “profitability” and reflects the efficiency of the financial and economic activities of an enterprise. For the operation of an enterprise to be profitable, it is necessary that income not only cover expenses, but also exceed them, that is, that the profitability of products be a positive value. In other words, the company must make a profit. In economics, profit is understood as the difference between the price of a product and its cost.

Product profitability indicators: where does the profit go?

After the profit is received, it is divided into two parts. From one part remaining at the disposal of the enterprise, economic incentive funds are formed. Also, this part of the profit is a source for paying interest on bank loans and for paying for fixed and working capital received from the state.
The company sends any remaining profit to the state budget. In turn, the state uses funds received from various enterprises for intrastate funds. Payments from enterprises account for more than 30% of budget revenues.
The profitability of an enterprise is calculated as the ratio of profit to the cost of goods sold. An important goal of every enterprise is to increase profitability. This is an axiom, because the goal of organizing any business is to obtain maximum income.

How to increase the profitability ratio of products?

The first way to increase the profitability ratio is by reducing the fixed and variable costs of production, which in total make up its cost. We can say that some part of the cost of each unit of production produced is the profit that will be received as a result of sales. The other part is the cost. Together they make up the price of the product. Accordingly, the lower the cost, the higher the profit, provided that the price remains unchanged.

Another way to increase profitability is to increase production volumes. The more units of a product are produced, the lower the cost per unit will be. The fact is that fixed costs, which remain unchanged as sales volumes increase, are distributed over a larger quantity of goods. To calculate how profitability will change, you need to know:

• initial production volume;
• achieved production volume;
• fixed costs;
• variable expenses;
• unit cost of goods.

Profitability - this is an indicator of the economic efficiency of an enterprise, its profitability or, in other words, the ratio of profit (gross income) and costs invested in creating this income.

Based on the profitability of an enterprise, one can easily judge the well-being of the organization.

In addition, profitability is one of the criteria for the quality of management and investment attractiveness. Profitability is always considered when drawing up a business plan for an enterprise. It should be calculated regularly, compared and monitored.

Why is profitability calculated?

— in order to control profits;

- to monitor business development;

- so that your own profit can be compared with the profits of your competitors;

— to be able to assess whether the company’s sales are profitable or unprofitable.

Calculation and analysis of the profitability of an enterprise is carried out using the following formula:

PP=BP/(VOАр.+Оср.)

BP– balance sheet profit received by the enterprise in the reporting period;

VOAsv.– the average value of the value of non-current assets, calculated for the reporting period;

Osv.– the average value of the value of current assets calculated for the reporting period.

Profit figures can be compared to enterprise capital, sales or cost of production.

Profitability, more fully and clearly than profit, helps to see the final results of the activities of any enterprise. It allows you to identify bottlenecks, strengths and weaknesses of the organization and the dynamics of its development. Profitability shows how effectively funds are used to generate profits.

Profitability can also be determined from the balance sheet, for yourself, when you need to analyze the counterparty. To do this, from the balance sheet form 2, the sum of all costs is calculated (item 20 + item 30 + item 40), and the balance sheet profit is divided by this amount. Thus, the profitability ratio is obtained.

In a market economy, the return on sales indicator is widely used.

Return on sales is defined as the ratio of profit from sales or net profit to the amount of revenue received:

Р=П/В or Р=Пч/В

R- profitability of sales;

P— profit from sales;

Pch- net profit;

IN- proceeds from sales.

Of course, the higher this indicator, the better and more efficient the enterprise operates.

If the profitability turns out to be negative (loss), then you made a mistake in calculating the price of the product, the price does not cover costs and it needs to be increased.

With profitability indicators of -20%, if you do not take action, then it is better to close your business altogether.

It is necessary to compare the profitability of sales for similar companies and over time. If the profitability of sales decreases, this indicates that the demand for the product or its competitiveness is falling.

How can you increase the profitability of an enterprise?

1.Increase profits from product sales:

By increasing sales volumes, for example, releasing new products and expanding the range.

- due to higher prices (improved quality, more profitable markets, faster trade turnover).

By developing the right marketing policy.

— through staff motivation and competent management.

2. Reduce production costs

By increasing production volume.

By increasing labor productivity and economical use of resources.

Analysis of profitability indicators

Profit indicators characterize the absolute efficiency of the enterprise's economic activities. However, the effectiveness and economic feasibility of the operation of the enterprise. It is assessed not only by absolute, but also by relative indicators.

Therefore, to characterize the financial condition of an enterprise, it is advisable to compare the amount of profit received with the cost of those elements that contributed to its receipt. This is achieved by using the profitability indicator. Profitability is a relative indicator that characterizes the degree of use of the resources available to the enterprise and the efficiency of these costs.

The economic essence of profitability can be revealed only through the characteristics of the system of indicators (see Table 1).

The results of the analysis of profitability indicators are summarized in Table 6:

Table 6 -- Key profitability indicators

	Indicator name	Indicator value	Deviation (+-)	Growth rate, %
	Sales revenue, thousand rubles.
	Total cost of products sold, thousand rubles.
	Profit from sales, thousand rubles.
	Balance sheet profit, thousand rubles.
	Average total assets, thousand rubles.
	Average value of non-current assets, thousand rubles.
	Average equity capital, thousand rubles.
	Average value of long-term liabilities, rubles.
	Return on sales, %
	Profitability of core activities, %
	Return on assets, %
	Capital return, %
	Return on equity, %
	Return on permanent capital, %

Table 5 shows that in 2007, compared to 2006, there was an increase in almost all profitability indicators, except return on equity. This figure in 2007 decreased by 0.18%, which is assessed negatively, since it indicates a slowdown in the turnover of the enterprise's equity capital. Return on sales in 2007 compared to 2006 increased by 2.01%, which indicates an increase in the efficiency of using the resources available at the enterprise.

There was also an increase in the profitability of core activities by 2.68%, which indicates an increase in the efficiency of resource use.

Return on assets increased by 0.04%, which indicates an increase in demand for manufactured products; therefore, the company has a guarantee that its products will be sold.

Since in 2007 the capital profitability indicator also increased by 0.27%, therefore, the enterprise’s efficiency in using fixed assets, as well as other non-current assets, increased.

An increase in the profitability of permanent capital indicates an increase in the efficiency of use of capital investments.

Ways to increase profitability and profitability

The growth factors of any profitability indicator depend on common economic phenomena and processes. This is first of all:

Improving the production management system in a market economy based on overcoming the crisis in the financial, credit and monetary systems;

Increasing the efficiency of use of resources by enterprises based on the stabilization of mutual settlements and the system of settlement and payment relations;

Indexation of working capital and clear identification of the sources of their formation.

An important factor in the growth of profitability in the current conditions is the work of enterprises to save resources, which leads to a reduction in costs and, consequently, an increase in profits. The fact is that developing production by saving resources at this stage is much cheaper than developing new deposits and involving new resources in production.

Reducing costs should be the main condition for increasing profitability and profitability of production.

Profit as the main result of entrepreneurial activity meets the needs of the enterprise itself and the state as a whole. The amount of gross income is influenced by a combination of many factors, both dependent and independent of business activity.

Important factors for profit growth that depend on the activities of enterprises are:

Increase in the volume of manufactured products in accordance with contractual terms;

Reducing its cost;

Quality improvement;

Improvement of assortment;

Increasing the efficiency of using production assets;

Increased labor productivity.

Factors independent of the activities of the enterprise include:

Changes in state regulated prices for products sold;

The influence of natural, geographical, transport and technical conditions on the production and sale of products, etc. - changes in the tax and depreciation policy of the state.

They are obtained by dividing the profit from the sale of products by the amount of revenue received. The initial data for its calculation is the balance sheet.

It is calculated in the FinEkAnalysis program in the Profitability Analysis block as Return on Sales.

Return on sales - what it shows

Shows how much profit the company receives from each ruble of products sold.

Return on sales - formula

General formula for calculating the coefficient:

Calculation formula based on the old balance sheet data:

K rp =	page 050	*100%
	p.010

Where page 050 And page 010 profit and loss statement (form No. 2).

Calculation formula based on the new balance sheet:

Return on sales - meaning

It is used as the main indicator for assessing the financial performance of companies with relatively small amounts of fixed assets and equity capital. Assessing the profitability of sales makes it possible to objectively look at the state of affairs.

The return on sales indicator characterizes the main aspect of the company's work - the sale of main products.

Return on sales - diagram

1. Increasing the indicator.

a) Revenue growth rates outpace cost growth rates. Possible reasons:

• increase in sales volumes,
• change in sales mix.

With an increase in the number of products sold in physical terms, revenue increases faster than costs as a result of production leverage.

The components of product cost are variable and fixed costs. Changing the cost structure can greatly affect profit margins. Investing in fixed assets is accompanied by an increase in fixed costs and, theoretically, a decrease in variable costs. Moreover, the relationship is nonlinear, so finding the optimal combination of fixed and variable costs is not easy.

In addition to simply raising prices for its products, a company can increase revenue by changing its product mix. This trend in the development of the enterprise is favorable.

b) The rate of cost reduction is faster than the rate of revenue decline. Possible reasons:

• increase in prices for products (works, services),
• change in the assortment structure.

In this case, there is a formal improvement in the profitability indicator, but the volume of revenue decreases; the trend cannot be called unambiguously favorable. To correctly draw conclusions, analyze the pricing policy and assortment policy of the enterprise.

c) Revenue increases, costs decrease. Possible reasons:

• price increase,
• change in sales mix,
• change in cost standards.

This trend is favorable, and further analysis is carried out to assess the sustainability of this position of the company.

2. Decrease in indicator.

a) The growth rate of costs outpaces the growth rate of revenue. Possible reasons:

• inflationary growth in costs outpaces revenues,
• price reduction,
• change in the structure of the sales range,
• increase in cost standards.

This is an unfavorable trend. To correct the situation, they analyze the issues of pricing at the enterprise, assortment policy, and cost control system.

b) The rate of revenue decline is faster than the rate of cost reduction. Possible reasons:

• reduction in sales volumes.

This situation is common when an enterprise reduces its activities in the market. Revenue declines faster than costs as a result of operating leverage. An analysis of the company's marketing policy should be made.

c) Revenue decreases, costs increase. Possible reasons:

• price reduction,
• increase in cost standards,
• changing the structure of the sales range.

An analysis of pricing, cost control systems, and assortment policy is required.

In normal (stable) market conditions, revenue dynamics change faster than costs only under the influence of production leverage. The remaining cases are associated either with changes in the external and internal conditions of the enterprise’s functioning (inflation, competition, demand, cost structure), or with an ineffective system of accounting and control in production.

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Synonyms

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1. Analysis of the profitability of the main activities of a trading organization
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