FinanceAccounting

The profitability of assets shows the efficiency of the firm

The effect of the enterprise in its absolute value is expressed by the amount of profit or loss. However, the use of absolute values for analysis is not very convenient, so it is often resorted to the calculation of relative indicators. From the standpoint of efficiency, the most popular indicators are profitability indicators. I would like to dwell in greater detail on those of them that characterize the profitability of the company's assets. The special significance of this group of indicators is that all the activities of the enterprise are mainly connected with the interaction with the property, which is represented in the assets. Thus, it is extremely important to determine the effectiveness of this interaction.

Calculation of the profitability index occurs by the ratio of profit to the amount of that, the profitability of which is determined, in this case - of assets. As for profits, everything is not so simple here. There are many different indicators that can be used in calculations. Most often, the profitability of assets on net profit, profit before tax or on sales profit is calculated . The profitability of assets determined by the net profit amount shows how much the given profit falls on each unit of the value of the organization's property. Net profit is influenced by many factors, so it will not always be correct to use it in calculations if it is supposed to compare the indicators of various enterprises with each other. To get rid of the influence of features in taxation will allow the use of profit before taxation, and only take into account the effectiveness of the main type of activity by calculating the profit from sales.

As mentioned above, the return on assets shows the degree of effectiveness of the company's use of its assets. It is clear that this property is not uniform, and it is customary to classify it. In this regard, it will not be superfluous to determine the profitability of separately circulating and non-current assets of the firm. The calculated coefficients will characterize the effectiveness of using each of these parts separately.

It is necessary to pay attention to the fact that the principles of accounting for profit and assets are somewhat different. Profit presented in the financial statements reflects the amount accumulated over the period, and assets - the value at a specific date. To make these differences somewhat smoother and take into account possible changes in the value of assets, it is customary in the calculations to use their average value over the period.

The profitability of assets shows the level of efficiency in itself, but it is simply impossible to draw any conclusions from a single indicator. It is necessary to have a number of indicators to compare them with each other. Most often, resort to the use of comparisons in time, which consist in the study of the dynamics of indicators. To do this, determine the relative and absolute changes, which allows to judge the presence of any trend. In addition, it often uses comparisons with the levels of profitability of other similar enterprises or with the profitability characteristic of the industry as a whole. Another popular method of analysis is factor analysis, which is carried out according to long-established traditional methods and allows to evaluate the impact of certain factors.

As you can see, the definition of the effectiveness of the use of property is a very important aspect of the study of the activities of the enterprise. The return on assets shows, depending on the indicators used, both the profitability of the core business and the functioning of the enterprise in general. However, it should be remembered that a simple calculation is not enough, and it is necessary to analyze the results obtained.

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