Profitability is an indicator of the performance of any company

Profitability is an indicator that is expressed in relative values and shows the profitability of the business, expressed in percent. Sometimes, profitability in non-profit enterprises implies efficiency. The profitability is determined by the ratio of costs and profits. The obtained coefficient shows how the result of entrepreneurial activity of the firm covers expenses.

It is necessary to understand that profit and profitability are different concepts. The profit for one enterprise can be considered huge, and for another - insignificant. There are profitability criteria that determine profit taking into account the size of the enterprise. Thus, profitability is calculated. This is the ratio of income to capital, which is invested in the enterprise. One of the indicators of profitability can be considered the ratio of profit (net, as in the balance sheet) before the payment of taxes (interest) to the total amount of long-term finance. The second indicator is calculated as the ratio of the same profit after paying taxes (interest) to the available share capital. These coefficients are quite successfully used when comparing two homogeneous companies and their indicators with the average figures for this industry. For correct comparison it is necessary to take profitability indicators at least for the last three years. And we need to compare several indicators simultaneously.

Economic profitability is the ratio that is calculated as the ratio of balance profit and cost of capital. All the necessary indicators are taken from the balance sheet. This ratio will show the amount of profit that the firm receives per unit of cost of capital, represented by the total amount of all resources, regardless of the sources of financing them.

Profitability is divided into net and total. Calculation of its coefficients is applied both to a separate output, and to the results of entrepreneurial activity of the enterprise as a whole.

Thus, the overall profitability of assets is represented by the amount reflecting the amount of finance that the enterprise was involved in obtaining each ruble of profit. It is calculated by the ratio of profit with the average value of assets for a certain period (quarter, semester, year).

Profitability of production is a generalizing indicator that characterizes the economic efficiency of all economic activities of the company and its structural divisions. It is calculated by the ratio of profit (net income) to the cost of production of finished products. The profitability of an enterprise can only be when income exceeds expenditure.

Increase in the profitability index can only contribute to a reduction in the cost of finished products while improving its quality.

Product profitability is the ratio of profit received to the corresponding costs of production (cost of finished products). This coefficient shows the efficiency of both the production as a whole and the sales of goods or services produced in particular.

Profitability is the definition of efficiency, both for all products and for individual types. The current definition of the economic state of the enterprise is made with the use of such new indicators as the basic coefficient of profitability and the coefficient of return on capital, which is determined in the balance sheet as its own. The last indicator is calculated by the ratio of net profit and average equity. The coefficient shows the degree of return on equity and characterizes the indispensable condition for development and retention in the company's market.

Thus, profitability is an indicator of the effectiveness of using current and non-recurrent costs.