Levels of profitability and their definition

The profitability levels used in the calculations make it possible to characterize some profitability of the enterprise. Distinguish profitability of production and the enterprise as a whole. This indicator can be used in the analysis of three indicators: sold products, a single product and a commodity position as a whole. The levels of profitability of the sold products can be characterized by calculating the ratio of the corresponding profit to the total cost price. When calculating the profitability of the entire commodity position, a similar formula is used, but the profit from the sale of such a commodity item and its cost are taken into account.

Levels of profitability of an individual product are calculated, taking as a basis the ratio of the profit earned per unit of the product to the corresponding cost price. In this case, the profit on the product is calculated by finding the difference between its price (wholesale) and cost.

The level of total profitability can be determined in the form of the ratio of profit (balance sheet) to the average value of fixed assets involved in the production process, as well as working capital, calculated on the basis of accepted norms. In other words, we can confidently say that this indicator is an indicator reflecting the increase in the total amount of invested assets (capital).

The analysis of the level of profitability is the basis for calculating the prospects for the development of the business entity, based on its economic indicators. However, such calculations should be supplemented by two key indicators, such as the profitability of the number of capital turnover and total turnover.

The number of capital turnover is the ratio of the revenue of the analyzed entity to the amount of its capital. At the same time, it is considered that the greater the amount of the company's gross proceeds, the greater the number of its capital turnover.

The indicator of profitability of turnover reflects the relationship between the gross turnover of the business entity and its costs (costs). It should be noted that the higher the profit level in comparison with the company's total revenue, the profitability of turnover has better indicators.

Levels of profitability contain the main indicator - the ratio of total profit to the value of production assets.

Based on practical economic calculations, it is necessary to note a large number of factors that reflect both external and internal influence. At the same time, external factors include factors that do not depend on the work of the enterprise collective (for example, prices for materials, transportation tariffs and depreciation rates). These activities are carried out on a general scale and have a significant impact on the overall results of economic and financial activities of the business entity. Changes in the product mix structure affect the volumes of finished products sold, as well as profitability and production costs.

The main task of economic analysis is the timely detection of the negative impact of external factors, as well as the determination of the amount of profit that can be obtained due to the impact of internal factors. In this case, you can not do without calculating the efficiency of using all production resources.