Any economic activity is carried out taking into account indicators, the main of which are profitability and profit from commercial activities. Profit is obtained as a result of the difference between income and expenses. It is this indicator that ultimately is the key to determining the effectiveness of the business.

We will analyze the basic concepts of how profit and profitability differ from each other. Profit is a monetary reward as a result of the financial activities of an enterprise, but profitability is a relative indicator (%) that reflects the level of efficiency in the use of all labor, material and financial resources.

How to calculate profit and profitability

One of the most popular theories that explains the level of profit is the theory of surplus value from K. Marx. He talked about the fact that additional value is created already at the stage of production by another commodity "labor power". What is surplus value? It includes wages for production employees, expenses associated with loans, taxes and rent. Therefore, the concept of profit fully reflects the essence of surplus value.

Varieties of profit

In economic theory, there is a net profit (the amount without taxes and payment of various fees) and gross (total) profit.
These formulas are used to calculate them.

Gross profit formula

VP \u003d BH - C, Where
VP - gross profit;
NH - net income from the sale of services or the sale of goods;
C is the cost of goods or services.

Net Profit Formula

PE \u003d VP - ∑ costs - ∑ taxes, Where
PE - net profit;
VP - gross profit;
∑ production costs;
∑ taxes, fines, penalties and various insurance payments, loans.

Profitability reflects the efficiency of all the resources taken into account, as a percentage. The profitability ratio itself can be obtained as a result of calculations on the ratio of profit to resources.

Varieties of profitability indicators

Allocate profitability of capital, fixed assets, assets, profitability of production, sales and others.

Consider the main two indicators.

Return on sales formula

It shows the percentage of surplus value for each unit of money earned.

RP=CHP/OP, Where
RP - profitability of sales;
PE - net profit;
OP - sales volume.

Production profitability formula

Thanks to this formula, you can find out how much profit a company receives from each unit of money spent on the production and sale of goods.

RP \u003d P / ∑ costs, where
RP - profitability of production;
P - profit from the sale of goods and services;
∑ costs - the amount of costs for the production of products.

Reviews and comments

Thank you very much for the collected information. I can also add that in economic theory there is the concept of efficiency and the effect of production. Effect is the result of production, and efficiency is the ratio of result to cost. The main performance indicators are capital and material intensity, which are calculated as the ratio of the result (in currency) to the cost of materials (in currency).

Profitability is a benefit, and here we are no longer interested in a specific figure, but in the result. Is this business profitable or not. And the profit is expressed in concrete figures. although here more income matters.

Oh, it's kind of complicated. income and expenses. If the Balance is positive, then there is a profit… if it is negative, then a loss… Profitability, in my opinion, means receiving a guaranteed income in a certain period of time. When all the expenses for the image development of the business itself are already covered, sit down and make a profit. If the profit is good, then the business is profitable, if the profit is cheap, then there is nothing to lose.

If the expected profit at the initial stage can still be somehow foreseen, then profitability, most likely, only over time and the promotion of the business itself, although I may be wrong in my estimates.

Profitability is an indicator that does not require special accuracy and determines only the possibility of extracting any net profit from an enterprise, whether it be 1 kopeck or hundreds of millions.

Profit is the result of the economic and financial activities of the enterprise and is considered as the difference between the price of products, or rather the proceeds from its sale, and its cost. In other words, profit is the net income of the enterprise. The profitability of an enterprise evaluates the efficiency of the production and economic activities of this enterprise, characterizes the level of return on costs and the degree of use of resources. It is equal to the ratio of net income to equity in a given unit of activity.

Profit is good. Only many enterprises are trying to work, as they say, “to zero”. In this case, there is a "savings" on income tax. By the way, in Ukraine they already pay tax on losses. So neither profit nor loss is now unprofitable!

Miledan, are you serious about the income tax? How can you pay something when the company does not even go to zero. And, as they consider then this tax, from what, in fact, it is not at all clear. Well, with such taxation, I do not envy entrepreneurs in Ukraine. When we had a default in the country, I didn’t hear about this.

Seriously! Calculate the difference between income and expenses! At the enterprise where I work now, they are actively struggling with losses. Moreover, we even began to tax pensions. If a pensioner works - 15%, if the pension is above 3000 UAH, then 20%! Probably this is not in any civilized country in the world!

When there is no profit, then the income may be equal to the expense, or even the expense will be greater than the income. I don't understand where the difference comes from. Or is it the opposite, negative. Struggling with low efficiency in production? It's still unrealistic.
Previously, my mother told me, the income tax was such that a hundred rubles left mere pennies. And from here it never occurred to anyone to strain too hard and overfulfill the plan.

I agree with you - for businessmen such a decision is complete nonsense. But for the state it is very convenient. In this case, most likely, the tax is levied on the profit itself. That is: you earned $10,000 and spent $30,000. So the tax is likely to take from $ 10,000.

Some countries practice a similar system of taxation. The higher the income, the higher the tax.

You will learn:

• What is the profitability ratio used for?
• What are the ratios of financial performance of the company.
• What is the formula for calculating profitability?
• How can profitability be changed and what does it depend on.
• How to calculate profitability indicators using a specific example.

Revenue is the total amount of income received by a company in a given period. This refers to the total amount before all kinds of deductions (taxes, variable and fixed expenses of the company).

Determination of return on revenue

Net profit is the amount that remains at the disposal of the company after the formation of the wage fund, payment of taxes, fees and other obligatory payments. The profit is used by business entities for reinvestment in further development, expansion of production, increase in the company's working capital, formation of reserve funds, etc., that is, improving the financial condition and business development.

Return on Revenue Formula can be presented as:

Profit / Revenue * 100% = Return on Revenue

By calculating the amount of net profit and evaluating it in dynamics, we can get an answer to the question: is it worth running such a business further, is the company developing in the right direction, is it financially successful?

Return on revenue is the ratio of profit to revenue. That is, the derived coefficient shows what share the profit takes in the total financial mass of the enterprise's revenue.

To calculate this indicator, you need to divide profit by revenue and multiply the resulting number by 100%.

Return on revenue

The return on revenue of a particular enterprise is compared with the industry average profitability and potential problems are identified. For example, if the average industry profitability of similar companies at the current time is 15%, and for a particular analyzed organization it is only 3%, then this indicates the presence of wrong decisions regarding the cost of production or other costs. If costs are too high, the level of profitability of revenue will systematically decrease. Analyzing this indicator, we can conclude about the literacy and competence of the enterprise management.

The ratio of profit to revenue most fully shows the degree of efficiency in the use of various resources of the company, including material, monetary, labor, production, etc. Profitability, based on the reason for the analysis, can be calculated as the ratio of net profit to revenue, or as the ratio of profit from sales to revenue, or as a ratio of gross profit to revenue, etc.

How to increase company revenue by 23% in 5 steps

Learn from the article of the electronic magazine "Commercial Director" the experience of a real company that increased its revenue using an algorithm of five simple steps.

Coefficients of financial performance of the enterprise

The coefficients of financial indicators can be both absolute and relative.

The absolute numbers are:

• EBIT is the company's operating income.
• EBITDA is the company's profit before tax, interest and depreciation. EBITDA is used to compare with peers in its industry and determine the effectiveness of commercial activity, regardless of the presence of debt to the state, creditors and depreciation.
• Operating cash flow (OpCF) - refers to the actual amount of free money remaining at the disposal of the organization before paying interest.
• Net (free) cash flow (FCF) - indicates the real amount of free funds that remain at disposal after all payments, except for the payment of interest and repayment of debts to creditors.

Relative financial indicators characterize the profitability of the business. The higher the profitability, the better the company is able to deal with costs (gross, operating, financial, and others) and the higher its profit per unit of costs. They break profitability into types to increase the visibility of which type of costs prevails in the overall structure.

Relative indicators are:

• Gross margin (margin) - the ratio of gross profit to revenue.
• Operating profitability (margin) - the ratio of operating profit to revenue.
• EBITDA is the ratio of profit before tax, interest and depreciation to revenue.
• Net profit margin is the ratio of net profit to revenue.
• Return on invested capital - characterizes the profitability of the organization when investing at the expense of its own and borrowed funds.
• The return on capital ratio ROCE is the ratio of the result before interest expenses and the arithmetic mean of the capital employed.
• Earnings per share is the ratio of net income excluding the cost of paying dividends on preferred shares to the total number of ordinary shares.
• ROE - The ratio of net income to the book value of share capital, shows the efficiency of using money invested in the issuer's shares.
• ROA - The ratio of net profit to the book value of assets, this relative ratio shows the profitability of assets and reflects the efficiency of the company's use of accumulated resources.
• The dividend payout ratio is the proportion of net income paid out as dividends.
• The ratio of a company's liabilities to the book value of its share capital. The high value of this ratio, i.e. exceeding 100%, indicates a weak financial stability of the company.
• WACC - weighted average cost of capital shows the interest rate with which the company's income is capitalized.

The profitability of the company, in contrast to profit, which shows the effect of commercial activity, characterizes the effectiveness of this activity. Profitability is a relative indicator that reflects the degree of profitability of the enterprise.

Formula for calculating profitability

Consider the calculation on the example of return on sales. The calculation formula in the financial statements will look like:

Return on sales ratio = Net profit / Revenue = line 2400 / line 2110

When calculating the profitability indicator in the formula, instead of net profit, you can put profit before tax, EBITDA, gross profit, operating profit, etc.

In foreign sources, the profitability ratio of sales - ROS is calculated by the following formula:

The standard value for this indicator is greater than 0. If the return on sales turned out to be less than zero, this is direct evidence of inefficient enterprise management.

• construction - 7%;
• wholesale and retail trade - 8%
• mining - 26%;
• agriculture - 11%.

Ways to improve efficiency can be different, including expanding the customer base, increasing product turnover, reducing the cost of goods and services from subcontractors, taking measures to change the cost of finished goods.

How to change the return on revenue

Measures described below can be used to increase the rate of return.

Revenue Growth Outpaces Cost Growth

This can be achieved either by increasing sales volumes or by changing the product range. With an increase in the number of products sold in physical terms, revenue increases faster than costs. The cost includes variable and fixed costs, changing the cost structure will change the amount of profit received.

Example of calculating return on revenue

For example, consider the reporting of Rosneft for 2016, such information is publicly available to all network users. Of all the data for the calculation, only the balance sheet of the enterprise for the year and the statement of financial performance are required.

For a complete analysis and comparison with other companies in the industry, as a rule, 3 profitability indicators are calculated:

ROA (return on assets)

To calculate ROA, the total value of assets is required, it is indicated in the balance sheet of the enterprise, the line “Total assets” is 11,030 billion rubles. From the income statement, you should take the value of net profit in the corresponding line - 201 billion rubles.

The formula for calculating the return on assets is the ratio of net profit of 201 billion rubles to the company's assets of 11,030 billion rubles, multiplied by 100%, that is, equal to 1.8%. Traditionally, ROA is the smallest value of the described indicators.

ROE (return on equity)

To calculate ROE, it is necessary to obtain the value of the enterprise's own capital, it is indicated in the balance line - 3,726 billion rubles. But it can also be calculated as the difference between assets of 11,030 billion rubles. and the amount of short-term liabilities (to be paid in the next 12 months) 2,773 billion rubles. and long-term liabilities (which must be paid within more than 12 months) 4,531 billion rubles, that is, a total of 7,304 billion rubles. It turns out that the value of equity is 3,726 billion rubles.

Thus, we get ROE equal to 5.39%. This is somewhat more than ROA, since a company usually attracts borrowed capital in addition to its own capital.

ROS (Return on Sales)

To calculate the profitability of sales, you should take the value of net profit from the profit and loss statement of 201 billion rubles. and the value of revenue from a similar report is 4,887 billion rubles. Next, you should divide the value of net profit of 201 billion rubles. for the value of revenue of 4,887 billion rubles. and multiply by 100%. It turns out that ROS - return on sales - is 4.11%.

Based on this detailed calculation example, you can independently calculate the profitability indicators of any company and compare the resulting ratios with industry averages. As a rule, they are freely available on the Internet for the current year.

Usually, the calculation of profitability of revenue is made for several periods, and not just for the last year. Of key importance is the comparison of the obtained indicators and similar data of other enterprises engaged in the same business sector. Return on revenue shows the general feasibility of business development in this direction, investments for investors and

How is profitability different from efficiency?

One of the most well-known tools for assessing the activities of economic structures is the indicator " profitability". In a wide variety of, including very authoritative sources, it is indicated that this is an important indicator of economic efficiency, which comprehensively reflects the degree of use of material resources and money. Is this true, and what kind of activity does this indicator display?

If we talk about cash flow, the classic definition of profitability is the ratio of profit (P) to costs (C). In turn, the concept of profit is based on two basic economic categories: costs (C) and income (D). Thus, profitability (P) is determined using the basic indicators P=(D-Z)/Z, or by using a derived indicator "profit" - P=P/Z.

What makes it possible to evaluate profitability? Profitability gives an assessment of the operating activity of the economic structure, but it is necessary to specify within what time interval. This must be done, since the initial data for the calculation are material or financial flows at the input and output of the structure, without being tied to specific operations.

The technology for determining profitability is as follows. Within a certain time interval, the movement of material and/or money resources at the input and output of the economic structure is recorded. If, for simplicity, we assume that operating costs are associated with the beginning of the operation, and the receipt of income with its completion, then the analyzed period will include the costs of operations 2, 3 and 5, since the beginning of operations 1, 4 and 6 is outside the analyzed period.

Similarly, if we are talking about cash receipts, income from operations 3, 5 and 6 will not be taken into account, since the completion of operations is outside the analyzed interval.

Thus, profitability characterizes the financial picture of income and expenses of the structure within a certain interval. And how well does it reflect the efficiency of the studied economic system?

Suppose that in the previous reporting interval, for example, due to seasonality, the main costs were concentrated, and in the current, the main income. In this case, the profitability of the previous period of activity will be underestimated, and the profitability of the current one will be overestimated. Thus, profitability does not reliably reflect the efficiency of the economic structure.

In addition, why replace the concept of "profitability" with the concept of "efficiency"? If profitability is used to evaluate activity, it must be said that the profitability of the economic activity of a certain structure within a certain time interval is evaluated, and not efficiency.

The inconsistency of profitability as a tool for assessing efficiency becomes apparent when comparing the effectiveness of individual operations. For example, operation A, which is more profitable, may be less efficient than operation B if operation B is shorter than operation A.

To determine the effectiveness of the above operations, we use transaction identification indicator E(Z, D, To), which links the integral cost estimate of the input products of the operation (Z), the output products of the operation (D) and its time (To)

Here T1 is the interval for using the effect of the operation. In economic calculations, this is a single interval.

Let's assume, it is necessary to investigate two operations (tab.). Here, income and costs are expressed in monetary units, the operation time is in days.

As you can see, higher profitability does not necessarily equate to higher efficiency.

conclusions.

1. The conceptual difference between profitability and efficiency is that profitability is a tool for an average assessment of the activity of the studied economic structure within a certain time interval, efficiency evaluates the results of a separate operation, process or project.

2. Profitability links the total costs and total profit of the structure under study within a specified time interval, while efficiency links the costs, profits and time of a particular operation.

Sources:

1. Great Soviet Encyclopedia. (In 30 volumes). T. 22 Profitability. M.:, "Soviet Encyclopedia". 1975, 628 p.

2. Economy. Profitability [Electronic resource] - Access mode: \WWW/ URL: http://economics.wideworld.ru/economic_theory/organization_profit/3/ - 03/09/2012 - Head. from the screen.

3. We create effective systems..ua/step3/step3-9.html - 03/09/2012 - Head. from the screen.

Entrepreneurs who want to successfully develop their business should regularly analyze its economic indicators, including profitability and profit. But, unfortunately, not everyone knows exactly how they differ, and some even consider them synonyms. We tell what these concepts have in common and different, how to calculate and analyze them.

To understand the difference between profitability and profit, we need to start with general definitions. In principle, after this much will become clear. Profit is the difference between the income received from entrepreneurial activity and the costs incurred. Profit is the final result of the work of a businessman, this is what, in principle, one’s own business is being conducted for. It is measured exclusively in specific monetary amounts.

Profitability is a slightly more complex indicator. It displays how efficiently the business uses all available assets, how much profit each invested unit of funds brings. For example, the calculation of the profitability ratio will show how many percent of the profit each spent ruble brought to the enterprise. It is mainly measured as a percentage, although, of course, no one will forbid the conversion of interest into specific monetary amounts.

Formulas for calculating profitability and profit

So, what is the difference between profit and profitability? In a very simple language, profit is the money that a businessman receives “on hand”, and profitability is a percentage indicator that shows how efficiently the company has built its work and how much money it receives from each ruble invested. Both of these parameters are calculated using simple formulas.

Profit is the money that a businessman receives “on hand”, and profitability is a percentage indicator showing how much money a company receives from each ruble invested

Profit: formula and calculation example

It is important to know that economists distinguish several types of profit, the most important of which are gross and net. Gross profit shows the difference between the proceeds and the cost of goods. It is calculated according to formula: "Revenue - cost".

For example, it is known that the cost of one unit of goods is 500 rubles. The entrepreneur sold 150 units of such goods at a price of 850 rubles. Then the gross profit will be equal to: (150 x 850) - (150 x 500) = 127,500 - 75,000 = 52,500.

Net profit

Does this mean that after the sale of this batch of goods, the entrepreneur will receive 52,500 rubles in his hands? Not really. The fact is that gross profit is not equal to net profit - the amount of funds remaining in the entrepreneur's account after paying all mandatory payments and taxes. Calculating it is somewhat more difficult, since more data needs to be collected.

Suppose a company managed to sell 2,000 units of goods for a month at a price of 850 rubles (at a cost of 500 rubles), but it will have to pay 30,000 rubles for renting premises and utilities, 15,000 rubles for an employee, transfer funds to a pension fund and also transfer to the budget 15% of gross profit. Will the businessman remain in the black or in the black? We believe:

1. Total income: 2,000 x 850 = 1,700,000 rubles.
2. Total cost: 2,000 x 500 = 1,000,000 rubles.
3. Gross profit: 1,700,000 - 1,000,000 = 700,000 rubles.
4. Tax fee: 700,000 x 15% = 105,000 rubles.
5. Personal income tax per employee: 15,000 x 13% = 1,950 rubles.
6. Contribution to the pension fund for an employee: 15,000 x 22% = 3,300 rubles.
7. Net profit: 700,000 - 105,000 - 30,000 - 15,000 - 1950 - 3300 = 544,750 rubles.

Thus, after paying all mandatory payments (rent, wages, taxes, contributions), the entrepreneur has 544,750 rubles left in his hands, which he has the right to use both for personal needs and spend on business development, invest in production, purchase new materials or raw materials (which happens much more often in practice).

It is important to know that economists distinguish several types of profit, the most important of which are gross and net.

Profitability: formula and calculation example

Now let's move on to calculating profitability. The simplest option involves knowing the cost of goods and the profit received: (proceeds / cost) x 100%. We use the data from the previous example for the calculation.

After selling 2,000 units of goods with a cost of 500 rubles at a price of 850 rubles, the entrepreneur received 1,700,000 rubles. How profitable is this business? We consider: (1,700,000/1,000,000) x 100% = 1.7.

Does profitability have a normal value

Due to the fact that profitability is measured as a percentage, many people have a question whether it has boundaries of a normal value. As such, there are no boundaries. Much depends on the goals that the entrepreneur sets for himself. For example, it is enough for someone to achieve the income necessary to keep the business afloat, while someone needs to constantly increase their income and expand the business.

If the profitability seems insufficient to the entrepreneur, he suffers losses, a number of measures can be taken to increase it. For example, raise the price of a product or try to reduce the cost. Usually, for this, they optimize production, reconsider the approach to logistics, and purchase cheaper materials. In general, they are looking for any ways to reduce costs.

What affects profit and profitability

The factors that affect these metrics are largely similar: the formulas actually use the same data. The main influencing factors include:

• the final price of the product or service;
• cost price;
• change in the staff of employees (reduction or increase);
• financial obligations of the enterprise, including tax collections and obligatory payments;
• changes in prices for procurement materials and raw materials;
• market situation;
• the level of demand for the product.

Both indicators show how successful the business is in the end: how much money the company earns and how much income each asset brings.

How are income and profitability similar and how are they different?

Now you know how to easily calculate the economic indicators of profit and profitability. Of course, for large enterprises, the calculation order will be more complicated, since it includes much more parameters that need to be taken into account in the formulas. But the general principle in the previous sections is clearly described and illustrated with examples.

The common feature of both indicators is that both of them demonstrate how successful the business is in the long run: how much money the business makes and how much income each asset brings. It is for this reason that it is important to track both coefficients in dynamics.

As for the differences, they begin with units of measurement: profit - in money, profitability - in percent. But the most important thing is their meaning. The first indicator shows how much money each sector of work brings to the entrepreneur (batch of goods, services), and the second shows how efficiently he uses the available assets in the business.

Profitability: main characteristics

Along with the terms analyzed above, the consonant - "yield" is often used. What it is? Profitability and profitability - what's the difference? Profitability, like profitability, shows how successfully this or that resource is used in business.

Profitability is calculated as the ratio of all proceeds to any asset (their totality) or the business as a whole. This is its difference from profitability - that is the ratio to the cost of goods sold (services rendered). Also measured as a percentage.

Conclusion

The calculation of profit and profitability indicators is not always simple, but necessary for any enterprise. Knowing the value of these coefficients and their changes in dynamics makes it possible to understand how successful the business is, whether it needs modernization and revision of technological processes. To calculate, first of all, you need to know the cost of the entire product and the revenue received.

Analysis of the effectiveness of the organization's activities is impossible without taking into account profitability indicators. An indicator that characterizes the profitability of an activity or, in other words, economic efficiency - this is the concept of profitability.

This parameter demonstrates how efficiently the company uses the available economic, labor, financial and natural resources.

For non-profit structures, profitability is the main indicator of work efficiency, and in commercial divisions, quantitative characteristics calculated with greater accuracy are important.

Therefore, there are many types of profitability: profitability of production, profitability of products, profitability of assets, etc.

But, in general terms, these indicators can be compared with efficiency indicators, the ratio between the costs incurred and the resulting profit (the ratio of costs to income). A business that brings profit according to the results of reporting periods is profitable.

Profitability indicators are necessary for financial analysis of activities, identification of its weaknesses, planning and implementation of measures to increase production efficiency.

The types of profitability are divided into those based on the cost approach, the resource approach or the approach that characterizes the profitability of sales.

Different types of calculation of profitability pursue their own goals and use many different accounting indicators (net profit, production cost, commercial or administrative expenses, profit from sales, etc.).

Profitability of the main activity.

Refers to cost indicators, characterizes the effectiveness of not only the main activities of the company, but also work related to the sale of products. Allows you to evaluate the amount of profit received per 1 ruble spent.

This takes into account the costs associated with the direct production and sale of core products.

It is calculated as the ratio between the profit from sales and the sum of the cost of production, which includes:

• the cost of sold goods, works, products or services;
• cost of business expenses;
• cost of management expenses.

It characterizes the organization's ability to independently cover costs with profit. The calculation of the profitability of an enterprise is used to assess the effectiveness of its work and is calculated by the formula:

Genus = Prp / Z,
Where Z - costs, and Prp - profit received from the sale.

The calculation does not take into account the time elapsed between production and sale.

Return on current assets.

The profitability of current (in other words - mobile, current) assets shows the profit received by the organization from each ruble invested in current assets and reflects the efficiency of using these assets.

It is defined as the ratio between net profit (i.e., remaining after taxation) and current assets. This indicator is intended to reflect the organization's ability to generate a sufficient amount of profit in relation to the current assets used.

The higher this value, the more efficiently working capital is used.

Calculated according to the formula:

Ptot = Chp / Oa, where

Rtot is the total profitability, net profit is Np, and Oa is the cost of current assets.

Internal rate of return.

The criterion used to calculate the effectiveness of an investment. This indicator allows you to evaluate the feasibility of investing in investment projects and shows a certain discount rate at which the net worth of funds expected in the future will be equal to zero.

This is understood as the minimum rate of return, when the investment project under study assumes that the desired minimum rate of return or the cost of capital of the company will exceed a smaller indicator of internal profitability.

This calculation method is not very simple and is associated with careful calculations. In this case, inaccuracies made during the calculation can lead to the final incorrect results.

In addition, when considering investment projects, other factors are taken into account, for example, gross margin. But it is on the basis of the calculation of the internal rate of return that the enterprise makes decisions of an investment nature.

Profitability of fixed assets.

The presence of profit, as an absolute indicator, does not always allow you to get a complete picture of the efficiency of the enterprise. For more accurate conclusions, relative indicators are analyzed, showing the effectiveness of specific resources.

The process of work of some enterprises depends on certain fixed assets, therefore, for a general increase in the efficiency of activities, it is necessary to calculate the profitability of fixed assets.

The calculation is carried out according to the formula:

Ros \u003d Chp / Os, where

Ros - profitability of fixed assets, Np - net profit, Os - cost of fixed assets.

This indicator allows you to get an idea of ​​what part of the net profit falls on the unit cost of fixed assets of the organization.

Calculation of profitability of sales.

An indicator that reflects net profit in total revenue demonstrates the financial performance of the activity. The financial result in the calculations can be various indicators of profit, this leads to the existence of several variations of the indicator. Most often these are: profitability of sales in terms of gross profit, net profit and operating profitability.

What is the formula for return on sales. Find the answer in this article.

Formulas for calculating the profitability of sales.

According to gross profit: Rpvp = Bp / B, where Bp is gross profit, and B is revenue.

Gross profit is the difference between sales revenue and cost of sales.

For net profit: Rnp = Np / V, where Np is net profit, and B is revenue.
Operating margin: Op = EBIT/B, where EBIT is profit before taxes and deductions, and B is revenue.

The optimal value of the profitability of sales depends on the industry and other characteristics of the enterprise.

So in organizations that use a long production cycle, such profitability will be higher than those companies that work with a high turnover, although their efficiency may be the same.

Sales efficiency can also show the profitability of products sold, although it takes into account other factors.

Threshold of profitability.

It also has other names: critical volume of production or sales, critical point, break-even point. Denotes a level of business activity of the organization at which the total costs and total income are equal to each other. Allows you to determine the margin of financial strength of the organization.

Calculated by the following formula:

Pr \u003d Zp / Kvm, where

Pr - profitability threshold, Zp - fixed costs, and Kvm - gross margin ratio.

In turn, the gross margin ratio is calculated by another formula:

Vm = V - Zpr, where Vm is the gross margin, V is revenue, and Zpr is variable costs,
Kvm \u003d Vm / V.

The company incurs losses when the sales volume is below the profitability threshold and makes a profit if this indicator is above the threshold. It is worth noting that with an increase in sales, fixed costs per unit of production decrease, while variables remain the same. The profitability threshold can also be calculated for certain types of services or products.

Cost-effectiveness.

It characterizes the payback of the funds spent on production, shows the profit received from each ruble invested in production and sale. Used to evaluate the effectiveness of spending.

It is calculated as the ratio between the amount of profit and the amount of expenses that brought this profit. Such expenses are considered decapitalized, written off from the balance sheet asset, presented in the report.

The cost-benefit ratio is calculated as follows:

Rz = P/Dr, where P is profit and Dr is decapitalized expenses.

It should be noted that the calculation of cost-effectiveness indicators demonstrates only the degree of return on costs spent on specific areas, but does not reflect the return on invested resources. This task is performed by indicators of profitability of assets.

Factor analysis of profitability.

It is one of the parts of financial analysis and, in turn, is divided into several models, of which additive, multiplicative and multiple are most often used.

The essence of building such models is the creation of a mathematical relationship between all the studied factors.

Additive ones are used in cases where the indicator will be obtained as a difference or sum of the resulting factors, multiplicative ones - as their product, and multiples - when the factors are divided into each other to obtain the result.

Combinations of these models give combined or mixed models. For a full-fledged factorial analysis of profitability, multifactorial models are created that use various profitability indicators.