Factor analysis of profit

The profit indicator is fundamental for determining the efficiency of the enterprise, therefore its analysis must be carried out in the most careful way. Managers and managers do not know enough, increased or decreased profit, compared to last year. For the adoption of positive managerial decisions, it is extremely important to understand what the changes are related to. The profit has grown because of the fact that the price was raised? Or did the company manage to increase sales volumes? Or maybe success is due to the implementation of a successful product policy? The factor analysis of profit before taxation will help to answer all these questions .

Factor analysis breaks down the changes in profits into several parts, depending on what they were conditioned by. Today, it is common to distinguish five main factors: changing the price policy, changing sales volumes, changing the sales structure (in the range), changing the cost price, and finally, changing the cost structure.

The greatest impact on profit is usually made by price changes, and the factor analysis of profit makes it quite easy to determine the extent of this influence. It's enough from the realization of the current year (price multiply by volume) to take away the realization of the last year in the volumes of the current year (just multiply last year's prices for the current volumes). The resulting difference, as a rule, is positive, and the effect of changes in the price of profit will show.

For the company, however, the growth of profit due to the increase in sales volumes is more significant and indicative. Since the growth of profits is often influenced by inflation, the factor analysis of profits should separate it and determine the real merits of the company. To determine the impact of volumes, the last year's profit should be multiplied by the special coefficient K1 minus one. The coefficient is calculated as the ratio of sales volumes of the current year in kind to the previous year. If sales volumes have fallen, the multiplier will be negative, and hence the impact on profit will also be negative.

No less important is the factorial analysis of profits, and the changes in profit that have occurred due to changes in the range of products. For example, the most profitable goods were sold better in the current year, while sales of unprofitable goods were reduced. The effect is calculated as follows. You need to multiply the profit of the past year by the difference of the two coefficients. From the coefficient K2, the calculated coefficient K1 must be subtracted. K2 is calculated as the ratio of sales in the volumes of the current year and last year's prices to the sales of the previous year (we considered the numerator when calculating the price effect).

Thus, it remains for us to reveal only the effect of changes in the cost price, and the factorial analysis of the profit from the sale It will be possible to finish. To calculate this effect, you need to subtract the cost of the current year from the S indicator. The indicator S is calculated simply. Take the cost of the last year and recalculate it taking into account the current sales volumes of each product. Thus, you exclude the influence of volumes and structure.

The last indicator, indicating the change in production costs due to structural shifts, is calculated in a rather complicated way and does not carry in itself especially important information. You can simply subtract all the factors calculated above from the general indicator of profit change and get, so-called, other conditions.

In fact, the factor analysis of profits is not so easy to conduct, as it may seem at first glance. And the availability of special management programs greatly simplifies the process, so that you only need to enter the desired numbers in pre-defined formulas.