Profitability of the enterprise

The profitability of an enterprise is an indicator of the efficiency with which fixed assets are used, calculated as the ratio of profit to the average value of the fixed assets, as well as current assets.

Profit and profitability of the enterprise are directly interconnected.

Profit is an economic category that expresses the production and economic relations that arise with regard to the formation and subsequent use of the product. In the real sector, profit takes a material form in the form of money, resources, funds and benefits.

If an enterprise receives any profit, then it is profitable. The profitability indicators used in the calculations reflect the relative profitability. Analysis of financial stability of the enterprise is based on the analysis of these indicators. Absolute and relative indicators are taken to assess the effectiveness and economic feasibility of the enterprise.

Absolute indicators make it possible to analyze the dynamics of profit indicators for certain years. In order to obtain more reliable results, the indicators are calculated taking into account inflation.

Relative indicators are the options for the ratio of profit and capital invested in production (profit and production costs). Therefore, they are not so influenced by inflation.

The absolute amount of profit does not always give a correct idea of the level of profitability of a certain enterprise, since it affects both the quality of work and the scale of the activity. In this regard, for a more accurate performance of the enterprise, not only the absolute amount of profit is used, but also the relative indicator, called the level of profitability.

These indicators should be considered in comparison with other time periods, since this allows us to judge the dynamics of the development of the enterprise.

The profitability of an enterprise characterizes the level of profitability or unprofitableness of production. The profitability indicators themselves represent relative characteristics of the results of financial growth and the effectiveness of the organization. They reflect the relative profitability of a firm or enterprise, which is measured as a percentage of capital costs from different perspectives.

The most important characteristics of the actual environment in which the company's profit and income are formed are profitability indicators. They are used in comparative analysis and assessment of the financial condition of the enterprise.

The main indicators of profitability are: profitability of the enterprise's products, return on capital and overall profitability.

Profitability of products is a reflection of the ratio of profit per unit of sales. This indicator increases with the growth of prices for products with constant costs for production or a reduction in the cost of production while maintaining a constant cent for the products being sold.

The profitability of capital shows the efficiency of the use of all the assets at the disposal of the enterprise.

The overall profitability (profitability of the enterprise) expresses the ratio of balance profit to the average value of fixed productive assets, as well as the standardized working capital. This ratio of funds to costs shows the profitability of the enterprise. In other words, the level of total profitability, reflecting the growth of invested capital, equals the profit formed before the accrual of interest, multiplied by 100% and divided by assets.

Overall profitability is the key indicator used for profitability analysis. For a more accurate definition of the development of the organization, two more indicators are calculated: the profitability of production turnover and the number of asset turnover.

Profitability of turnover is equal to the dependence of gross revenue on costs. The number of capital turnover is equal to the ratio of gross receipts to the amount of capital.