Net profit is the most important indicator for any enterprise

Net profit is one of the most important factors that affects the profitability of a business entity. A reliable analysis of this indicator can give an answer to the question of whether the enterprise should continue the path begun, or to look for other opportunities for generating income.

The net profit is the part of the income left at the disposal of the organization, received after all the costs incurred for production and sale of the product, as well as payment of mandatory payments and taxes. Its purpose is to stimulate the team and expand production processes. The amount of net profit influences the calculation of dividends intended as a reward to shareholders of the company. It is used as a source for the formation of reserves and funds, as well as for the growth of non-negotiable assets and reinvestment in production.

Net profit is the most important indicator for any enterprise. Its magnitude is the result of the activity of the business entity. Success in the company's work is reflected in growth, and failure - the fall of this indicator.

Net profit, the definition of which is an important point for the analysis of the enterprise, begins with the determination of the size of gross income. This indicator is the amount of revenue received from the sale of services, goods, works with discounts and does not include the value of goods that were returned to the company by buyers. At the next stage, all the costs incurred for manufacturing the products and rendering the services are calculated. After that, gross profit is determined, which is the difference between gross income and cost. The amount of other expenses is also determined. It includes the following costs:

- to search for sales markets and new partners;

- for the conclusion of new transactions;

- for force majeure;

- to pay fines, penalties and interest on loans received.

Net profit is the difference between gross income and cost, as well as other income and taxes. If the received amount turns out to be a minus sign, then this will indicate a loss-making operation of the enterprise.

The use of the amount of net profit depends on the decision of the head of the organization. Most often it is sent to the formation of various reserves and funds, payment of dividends, and also remains for the purpose of accumulation. At the expense of net profit, the company can provide charity by transferring a certain percentage of it to social needs.

The average value of the normal net profit index, drawn up by the economic services of Britain, should be fourteen percent. Enterprises that receive a value less than this figure, in their opinion, can be considered unprofitable.

Net profit refers to the group of the most significant financial indicators of the entity's reporting. Data on the size of this quantity is of primary interest to external users. If in the dynamics of the period under consideration the indicator of net profit has significant fluctuations, this fact will cause a cautious attitude among investors. In this case, the organization will have to provide detailed explanations of the reasons that caused these changes.

It is not possible to give a high estimate of the performance of an enterprise, based only on one indicator - net profit. The types of profit, which also affect the opinion on the effectiveness of the business entity - this is another two components of income. Their values are reflected in the annex to the balance sheet. You can find them in the income statement. The methodology for reflecting these indicators and how they are accounted for is contained in IFRS 8. These include profit (loss) from ordinary activities, as well as results from extraordinary circumstances.