The coefficient of profitability of assets as an indicator of the effectiveness of their use

The activity of any commercial enterprise is connected with one or another interaction with assets. Based on this, we can say that the effectiveness of this interaction deserves special attention. There are various indicators that in one way or another evaluate the effectiveness. However, the simplest and most understandable method, which is directly related to the financial result, profit, is the determination of profitability. It is on how to calculate the coefficient of profitability of assets and some related indicators, we will dwell in more detail.

In general, to determine profitability, you need to divide the profit measure by the amount that the profitability of which is calculated. Thus, the return on assets ratio will be calculated as profit attributed to the value of assets. This indicator reflects the efficiency of using the firm's assets (assets), reflecting the amount of profit that is formed due to each ruble of the value of this property.

It is worthwhile to focus on which values should be taken into account when calculating the indicator. One of the problems is that there is a large "assortment" of profit indicators. In the profit and loss account alone, there are four different amounts of profit! However, the return on assets ratio is a fairly general indicator, so when calculating it, you can use the usual net profit. In addition, calculation is possible based on profit before tax. Calculation using this indicator allows you to compare companies and organizations with different tax status.

We pass to the denominator, with which too some difficulties may arise. They, in turn, are related to the fact that the indicators of the financial result, that is, profit, and property, that is, assets, are reported differently. Profits are formed and accumulated over a certain period, but the value of assets is reflected in the balance sheet only for a specific date. This means that during the period their value could change in a certain way, and these changes need to be taken into account in order to correctly calculate the return on assets ratio. The most correct solution in this case will be the construction of a calculation based on the average value of the value of assets for the analyzed period. Less correct, but simpler is the use of the value of the property at the end of the period. Despite the fact that such a calculation is less accurate, its logic is there: the value at the end of the period has already undergone all changes.

In addition to determining the profitability of the entire value of the property, it is possible to calculate separately the coefficient of profitability of current assets and non-current assets. Their calculation is made by the same method. In other words, the numerator uses the net profit amount, and in the denominator - the value of current or non-current assets, depending on the calculated indicator. Obviously, in the case of both indicators, it is also necessary to include in the calculation the average value of the property over the period, so that the profitability has been determined more accurately.

The last indicator, which we will consider, is the coefficient of return on investment. It allows you to assess the effectiveness of investments in the acquisition of an asset. Calculation of this coefficient is quite different from those considered earlier. It is also determined by division, but the values used in the calculation are completely different. In the numerator of a fraction it is necessary to put all the income received from possession of the asset. This income is the sum of the profit brought by it and the difference between the price of purchase and sale. Then this income must be attributed to the amount that was spent on the acquisition. You can calculate this indicator not only for one specific type of assets, but also for their totality.