Determine the profitability of costs for the assessment of production efficiency

Each company that exists on the market is unique. One indicator of this is the fact that all organizations are to varying degrees effective, and even if they receive the same profit, this does not mean that they are equally effective and profitable. More objective to judge this can be based on the analysis of profitability, that is, the relative level of profitability. Agree, with the same amount of profit, the profitability of cargo transportation is likely to differ from the profitability of some commercial or industrial enterprise.

The profitability of the enterprise can not be determined with the help of any single indicator. The activity of the organization is very diverse, therefore, there are quite a few indicators of its effectiveness evaluation. However, the activity of any company is related to the implementation of costs for the production of the product (or for the provision of services, work, but it does not change the essence). In this regard, it will be logical to dwell on the indicator characterizing the profitability of costs in more detail.

In general, the profitability indicators are calculated by the ratio of the amount of profit received to the amount of profitability of which is determined. Thus, the profitability of costs is determined by dividing the revenue by the costs that will be represented by the cost of production. Despite such a simple description, the calculation of this indicator can cause some difficulties. The fact is that both profit and cost can be determined in different ways, and for the accurate calculation it is necessary to make the right choice.

Let's consider what indicators enter into the profitability of costs incurred in the production of products, as well as its subsequent implementation. Most often, profitability is estimated by the net profit, but in this case its use will most likely be a mistake. This is due to the fact that the net profit is subject to changes under the influence of that activity of the firm, which is not related to the production and sale of products. Thus, the indicator of profit from sales is more suitable.

As for the cost, here, too, not everything is so simple. If we want to determine the profitability of costs for both production and sales, then we need to include in the calculation a cost that takes into account not only production costs, but also others related to the implementation. In this connection, the indicator of the production cost can not be used, but the indicator of the full cost price will do the best.

So, collecting the figure together, we get that the profitability of costs for the products sold is determined through the ratio of the profit from sales to the indicator of the total cost of production, which was realized. And what is the economic meaning of the calculated value? It is obvious and consists in how much profit can be obtained from each ruble, which forms the cost of production and sale of products, services or works. What is noteworthy, this indicator describes not only the efficiency of production, but also the efficiency of marketing activities. This is its value.

None of the indicators of profitability is not limited by any normative values. The reasons for this are clear, since all enterprises are different, and very high profitability for one of them can be a critical level for another. Proceeding from this, the analysis of profitability is most often carried out by studying the change in indicators over time, that is, determining their dynamics and trends. In addition, comparisons with analogical enterprises and with indicators characteristic of the industry as a whole are often used.