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# Economic effect and economic efficiency: calculation formula

The creation of a formula for calculating economic efficiency could significantly facilitate the life of enterprises. In order to increase profits, each company tries to improve the quality of products and increase their income or invest money in the production process in order to reduce costs.

## Types of efficiency

Efficiency is divided into two categories. The first one is economic. The second is socio-economic.

With an economic effectiveness, the criterion is the company's ability to maximize the amount of its profit. The criterion of social and economic efficiency is the level of satisfaction of the interests and needs of the population.

## Classical efficiency calculation

The general formula for calculating the economic efficiency is as follows:

*EkEf = P / 3* , where

Ekef - economic efficiency;

P - the result obtained from the investment;

З - costs incurred to achieve the result.

This formula can be used to calculate the economic efficiency of measures, the duration of which is calculated for a short period of time. In another case, this indicator is not able to reflect the feasibility of investment, because in the long run there are additional variables that do not include the above formula.

## Absolute efficiency

There is also a formula that reflects absolute effectiveness. It has the following appearance:

*Ee _{abs} = (Ef _{1} - Ef _{0} ) / (W + K * _{KH} )* , where

ITS - economic efficiency;

Ef _{1} is the overall result after the activities;

Ef _{0} - the result before the events;

And - total costs;

K - investment for events;

К _{н} - the normative coefficient.

## Regulatory Ratio

This index shows, what can be the minimum admissible efficiency in this or that sphere. The parameter is the same for all activities of a certain industry, but it may vary depending on the scope.

The coefficient value is in the range of 10 to 33 percent. In the sphere of trade, this figure is 25%, in the industrial sector - 16%.

## Efficiency of the use of factors of production

Any enterprise has labor resources, basic and circulating means of production. Without them, the production process is unrealistic. Also, companies are trying to improve their investment performance to improve performance.

To calculate the effectiveness of using each of these factors, their methods are used. Some of them are based on the same principles.

## Efficiency of staff use

In order to measure how effectively the enterprise uses its workers, two parameters are used. The first is production. The second indicator is labor intensity. The output is calculated as the ratio of the number of goods produced to the cost of personnel:

*B = O / 3* , where

B - production;

О - volume of the production made at the enterprise;

З - expenses incurred by the enterprise on labor resources.

The indicator of labor intensity is the inverse of the previous indicator and shows how much money is needed to spend on the personnel of the enterprise so that one unit of production is manufactured.

*T = 3 / O = B ^{-1 =} 1 / B* , where

T - labor intensity;

B - production;

О - volume of the production made at the enterprise;

З - expenses incurred by the enterprise on labor resources.

The formula for calculating the economic efficiency for the company's workforce can be displayed as follows:

*EE _{m} = ((0 _{1} * U - 3 _{1} ) - (O _{0} * U - 3 _{0} )) / I* , where

EE _{tr} - economic efficiency for human resources;

О _{1} - the volume of output after investment in personnel;

C - the price of the product;

З _{1} - the cost of production after the events;

О _{0} - the volume of sales of products before investment in labor resources;

З _{0} - the cost of production before the event.

## Fixed assets (OF)

There are two main parameters for calculating the effectiveness of the use of OB: capital productivity and capital intensity. Capital productivity is calculated as the ratio of the value of all products, which was produced by the enterprise within one year, to the average annual value of funds.

*Ф _{о} = ВП / С*

_{с.г.}

_{,}Where

VP - all the company's products in monetary terms (including the cost of semi-finished products and work in progress);

Ф _{о} - capital productivity ratio;

Since _{this year.} - the cost of PF per year on average.

The indicator of capital intensity is the inverse of the return of fixed assets. You can determine the value of the coefficient using several formulas.

*Φ _{e} = (Φο) ^{-1} = 1 / Φο* , where

F _{e} is the capital ratio;

Ф _{о} is the return on assets.

In the event that the return on fixed assets (OS) is not found, the capital intensity can be determined as follows:

*Ф _{e} = (С _{с.в.} / ВП)* , where

F _{e} is the capital ratio;

VP - the value of gross output in monetary terms;

Since _{this year.} - The average annual value of fixed assets.

All companies are trying to reduce the capital intensity and increase the return on assets. An example of the formula for calculating the economic efficiency of investments in fixed assets is presented below:

*EE0 = ((0 _{1} * Ц _{1} - З _{1} ) - (О _{0} * Ц _{0} - З _{0} )) / И* , where

EE _{of} - economic efficiency for fixed assets;

О _{1} - the volume of output after investment in PF;

Ц _{1} - the price for production after investment;

Ц _{2} - the price of the products before investing in fixed assets;

З _{1} - the cost of production after the events;

О _{0} - the volume of sales of products before investment in fixed assets;

З _{0} - the cost of production before the event.

## Working capital (ob.S.)

To determine the effectiveness of the use of current assets of the enterprise, three indicators are used:

- Coefficient of turnover;
- Period of turnover;
- Coefficient of congestion. FROM.

Coefficient of turnover Об. C. Is the same as the return on assets for the OS. It is calculated by the formula:

*K _{o} = РП / С _{обс}* , where

К _{об} - coefficient of turnover;

RP - goods sold by the company in monetary terms;

With _{obs} - the average amount of the rest. FROM.

The load factor is the inverse of the turnover ratio:

*K _{s} = (K _{ov} ) _{-1} = 1 / K _{o} = C _{обс} / РП* , where

К _{з} - coefficient of congestion;

К _{об} - coefficient of turnover;

RP - goods sold by the company in monetary terms;

With _{obs} - the average amount of the rest. FROM.

The turnover period is the number of days that is necessary for the working capital to make one complete turnover, calculated as follows:

*T _{о} = Д / К _{об} = Д * С _{обс} / РП* , where

Т _{об} - time of a turn;

D - number of days of the analyzed period;

К _{об} - coefficient of turnover;

RP - goods sold by the company in monetary terms;

With _{obs} - the average amount of the rest. FROM.

The formula for calculating the economic efficiency of the proposed measures to improve the use of working capital is based not so much on additional profits as on reducing costs.

* _{Ee} = E _{y} / I* , where

I its economic efficiency of current assets;

E _{y} - conditional savings of working capital;

And - the size of attachments.

## Economic effect

Formulas for calculating economic efficiency and economic effect have found wide application among companies that make short-term monetary injections to improve certain aspects of their activities. The formula for calculating it is as follows:

*Ef = D - W * K* , where

Ef - economic effect;

D - income or savings from events;

And - the costs of the activities;

К _{н} - the normative coefficient.

## Advertising Effectiveness

Advertising - a set of marketing tools, the purpose of which is to disseminate information about goods, services, people, companies, as well as in attracting customers. The formula for calculating the economic efficiency of advertising displays the result obtained after the advertising campaign. The formula for determining the coefficient is as follows:

*EE _{p} = (VD _{1} - VD _{0} ) / I,* where

EE _{p} - economic efficiency of advertising;

VD _{1} - gross income after the creation of advertising;

VD _{0} - gross income before the creation of advertising;

And - the cost of advertising.

When calculating the effectiveness of the use of advertising tools, it is very difficult to determine how much the gross income of an enterprise has been due to advertising. There is no guarantee that the company's revenue would not increase if the firm did not advertise itself or its goods. Despite this, the economic effectiveness of advertising is still being considered.

## Economic efficiency of the company

The main indicator in the company's work is the net profit, part of the proceeds, which remains after all costs have been deducted and all taxes paid. There is no point in increasing revenues, if the costs increase the same way or even more rapidly.

Thus, the classical calculation of economic efficiency can not always reflect how the proposed measures will eventually affect the final result. This is due to the fact that it is calculated as the ratio of the result to the cost only to achieve it. In cases where the result is gross income, the indicator of economic efficiency is not accurate, since it does not take into account the possible increase in the volume of production costs.

The formula for calculating the economic efficiency of an enterprise can be expressed as follows:

*EE _{n} = (PP _{1} - NP _{0} ) / I* , where

ЕЕ _{п} - economic efficiency of the enterprise;

PE _{1} - net profit after investment;

BH _{0} - net profit before investment.

## Long-term investment project

All the above methods of calculating the effectiveness can be applied only for short-term activities (up to one year). In the long run, the calculation formula does not take into account the discount factors that make it possible to calculate the appropriateness of ownership with regard to alternative incomes.

As such, the formula for calculating the economic efficiency of the project, which is designed for a long time, does not exist. The feasibility of the investment is calculated on the basis of net present value, as well as the payback period, which shows how long it takes for the investment project to pay off completely and begin to make a profit.

The net present value is calculated as the sum of all payments and income from the investment, taking into account the discount factors for each period. The TTS formula can be represented as follows:

PTC = (CF / (1 + p) ^{1} ) + (CF / (1 + p) ^{2} ) + (CF / (1 + p) ^{3} ) + ... + (CF / (1 + p) ^{n} ), where

CHTS - net present value;

CF - the flow of payments (the difference between income and expenses);

P is the calculation percentage;

N - the term of the investment project.

This parameter shows how effectively investment funds are used. If the amount of TTS is higher or equal to zero, this means that it is advisable to implement an investment project. In the event that the net present value is shown to have a negative value, you should calculate the internal interest to see how much the money has paid off.

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