Profitability of products, sales, assets and equity as the most important performance indicators.

Evaluate the effectiveness of any business firm by calculating profitability indicators. This is a fairly broad group of coefficients that characterize the ratio of profits received to incurred costs, revenues or any resources. It does not make much sense to consider here all possible variants of the calculation, so let us dwell on the most important ones.

The profitability of the products reflects how much profit each unit invested in the cost of the product, product or service will bring. Already from the definition it becomes clear how to determine the profitability of products. To do this, it is necessary to divide the profit into cost. The use of different profits in the calculations will yield different indicators, but most often profitability is determined by net profit.

Obviously, one can not draw the right conclusions by calculating only the profitability of the products. The return on assets, sales and equity is also determined.

The indicator of profitability of assets is determined by the ratio of profit to the value of the total assets of the enterprise. The meaning of this indicator is extremely clear: it shows how many units of profit the firm brings each unit invested in the formation of assets.

The more profitable is the coefficient of profitability of sales. It can be calculated using either the profit from sales or the net profit in the numerator, and in any case the revenue will be in the denominator. In the first variant, the indicator allows you to judge the pricing policy of the enterprise, as well as the effectiveness of cost management. The second option also takes into account the impact of the tax factor. In the general case, the ratio in question is a measure of the share of revenue in profits.

If we calculate the ratio between the net profit received and the value of the organization's own capital, then we get the value of the profitability factor, obviously, of equity. The meaning of this indicator is very important, as the determination of the effectiveness of the use of capital of owners allows you to judge the ability of the organization to generate income, and also provides an opportunity to compare with alternative options for investing money.

The simple calculation of profitability indicators is likely not enough to formulate conclusions. It is necessary to assess the change in these indicators in a few years to judge the positive or negative dynamics. In addition, it is worth comparing the various indicators of profitability among themselves.

More important than determining the dynamics of indicators can be only the identification of the causes of these or other changes. To judge what exactly and to what extent the coefficients of profitability affected by the use of factor analysis. Most often, factor analysis is conducted with respect to the profitability of equity and assets using the DuPont technique.

By simple transformations, you can get that the return on assets is affected by their turnover and profitability of sales, and in the case of equity, a factor of financial dependence is added to these factors . Using the method of absolute differences , the influence of each of these factors is determined separately, as well as their impact in the aggregate.

As you can see, for all its simplicity, indicators such as profitability of products and other coefficients of profitability play an extremely important role in describing the financial condition of the firm. Each of them is connected with the most important indicator of efficiency - profit, therefore, their calculation should be given special attention.