Economic profitability: the formula for calculating the balance

An important economic indicator is profitability. Why is he given such attention, and how to calculate it? What makes it possible to assess and recognize the economic profitability, the formula for calculating it and the resulting result?

What it is?

What is generally called profitability? This is the percentage of the profits received and invested in something tangible. How is the classical profitability calculated? To do this, divide the net profit by the sum of all expenditures, subtract the unit from the result obtained, and multiply this number by 100%. As an example, this situation can be approached: a person invested 1000 monetary units, and received 1200. So it is necessary to make such calculations: ((1200/1000) -1) * 100%. The result is 20%.

The scope of knowledge about economic profitability

The value of profitability as an assessment of the state of affairs is difficult to underestimate. It was applied even before the emergence of economic sciences on an intuitive level. Having learned the indicator of profitability, it is possible to judge the state of affairs at the enterprise. So, with the growth of profitability the company will be able to confidently exist, even if now there is a significant amount of debts.

When profitability is kept at the same level, it often means that the entire available market has been occupied, and new spheres should be developed. But you have to be careful, because any strong influence from the outside can spoil the whole situation. If the profitability falls, you should beat the bells, even if under the current situation the incomes are such that the existence of the company for a year is safely secured. You can predict the future of the enterprise, even without having a lot of information, but only data that let you know what the economic profitability of the enterprise is. The formula helps to identify problems even before they appear.

For the first time, the concept of David Ricardo was introduced under the name of surplus value. By its designation, during production processes, the value of raw materials and ready-to-sell goods increases, and the economy faces the task of equitable distribution of economic benefits.

The economic profitability of the enterprise on the basis of the balance sheet

Since the enterprise is the basis for the economy, profitability is one of the most important issues. How to calculate surplus value? If we take the generalized indicators, then we can use the previously mentioned formula. But there is another version of the calculation of the balance sheet, when the profitability is calculated in form 2 (summarize 20, 30 and 40 of the article), and the balance profit is divided by the amount received. Taking into account the important economic profitability, the balance formula allows you to obtain data that is valid at the moment in a certain time interval, for which information is taken. The obtained value is the coefficient of profitability. To translate the values into a percentage, you must take a unit, and multiply the remainder by 100%.

How are you doing with the assets?

The calculation of one enterprise is far from everything, it is still necessary to consider assets. But before the calculations you should find out the specific information:

1. Calculate the cost of sales.
2. Calculate the net profit received by the enterprise.
3. Calculate total assets. They mean the amount of equity and financial liabilities. If it turned out a minus value - it means that there is our debt to someone. If it turned out plus value, then someone has a debt to us. When calculating, not only the body of the loan or debt is taken into account, but also the interest on them (if the liabilities are interest-bearing). It should be noted that there may be a situation where both the company owes money and the enterprise should. Then the financial state is calculated in this way - if the enterprise owes more, then the business is quite good.

How, on the basis of these data, is the economic profitability of assets calculated? The calculation formula differs from the above equation. Now to the actual calculations. It is necessary to calculate the ratio of net profit and total assets. This will be profitability. To convert to a percentage value, you must multiply the value by 100%. You should back down and say that such an indicator as profitability of assets is strict: it is undesirable to bully up it, but if it is small, the capital is not effective and is simply "eaten".

What can affect the final value?

To determine the results of economic activity, you can calculate the profitability of sales. All the necessary data have been given earlier, so the case for small. It is necessary to come clean to arrive at the sales revenue. To get the value in percentage, it is necessary to take a unit and multiply by 100%. Also, changes are possible when calculating for different periods that are contiguous - this is the difficulty, when the economic profitability is calculated. The formula for calculating the balance can show the state for a given period, and the formula for the enterprise - for the entire period of operation.

Normal level of profitability

But how should the level of profitability be normal so that the enterprise successfully operates and simultaneously provide the population with goods or services at attractive prices? In economics, it is commonly believed that in order for the company to be profitable and at the same time popular, it is necessary that the profitability is at the level of 14%. Although it should be noted that some companies, offering their products, achieve much better results. But below this threshold should not be lowered, because as the emergence of unforeseen spending this figure will decrease, and the real profitability index for the enterprise will be about 10%.

It is also necessary to take into account that the enterprise not only earns its existence and a good life to the owner, but also should create opportunities for expansion. Focusing on this thesis, it is always worth thinking about how to invest part of the future in the future.

Conclusion

The article examined what profitability is, how it is calculated, what are the pitfalls, and what level of profitability is considered normal. It is necessary to say at the end that normal profitability is only when investing correctly and at the same time, in the absence of fear of risks, invest money. Theoretical preparation makes it clear the importance of economic profitability, the formula of calculation helps to determine whether the correct actions are carried out by the management of the enterprise or not.