How to calculate the profitability?

The main goal that any enterprise puts in its work is profit. However, based on the availability of this indicator, it is impossible to determine the effectiveness of the business entity. For the financial analysis of the enterprise, in addition to the profit, the profitability indicator is used , showing the income received for one ruble of spent funds. This value gives an answer to the question of how profitable the business entity is selling products, distributes current assets and uses investments invested in production. Various methodological recommendations give guidance on how to calculate the profitability of sales, assets and equity. These indicators together allow you to fully assess the performance of the economy, characterize the use of its assets and liabilities, outline ways to increase profitability.

Before calculating the profitability of the enterprise, it is necessary to find out the amount of profit received for the reporting period and the cost of sales. After processing the reports, compiling the balance sheet and statistical reporting, you can begin to determine the value of this indicator. Profitability is calculated as the ratio of the profit received by the enterprise to the costs incurred. At the same time, income indicators can have different meanings. The profit can be net, from the sale of products and from various activities. In the denominator of the formula, when calculating the question of how to calculate profitability, the value expressions of non-current and current assets, borrowed and equity capital, revenue and cost of goods sold can be used. If the business entity after the expiration of the reporting period covers all costs incurred and received income, then its work is profitable. The enterprise itself is considered to be profitable at the same time. The value of this indicator characterizes the effectiveness of the work of management personnel. The necessary values when deciding how to calculate the profitability of an organization can be taken from the forms of the balance sheet (# 1 and # 2), as well as the annexes to it (# 5).

The planning process at the enterprise is impossible without determining the efficiency of sales of products. To do this, you need to know how to calculate the profitability of sales. Depending on the purpose, which is put in the analysis of the enterprise, different indicators can be used. The value of profit in the numerator of the formula can be taken as gross and balance, and clean. The denominator can be in the form of the cost price of all released or only sold products.

The analysis of profitability is conducted with the purpose of making timely management decisions on the growth or reduction of prices or costs incurred in the production of products. Changing these indicators, you can increase the efficiency of the business entity. In order to determine how to calculate the profitability of a single unit of production, it is necessary to organize accounting for each item of the product. If the rate of return is unsatisfactory, then urgent measures should be taken to reduce production costs. At the same time, it is necessary to develop technologies for the use of more economical materials, methods for their processing, and also to reduce the number of working personnel. It is also necessary to find new suppliers that sell cheaper raw materials. To increase the profitability of the enterprise, additional markets for the sale of more expensive products are sought, and trade in products with a greater coefficient of profitability increases.