Laboratory work
discipline
Subject: "Profit and Profitability"
Kumertau 2012
Consider the concept of profit and types of profit.
consider the concept of profitability. Types of profitability.
Brief summary of the topic:
Profit characterizes the economic effect obtained as a result of the enterprise's activities. The presence of profit in an enterprise means that its income exceeds all expenses associated with its activities.
Profit has a stimulating function, at the same time being a financial result and the main element of the financial resources of an enterprise. The share of net profit remaining at the disposal of the enterprise after paying taxes and other obligatory payments must be sufficient to finance the expansion of production activities, scientific, technical and social development of the enterprise, and material incentives for employees.
Profit is one of the sources for the formation of budgets at different levels
A distinction is made between accounting profit and net economic profit. As a rule, under economic profit– refers to the difference between total revenue and external and internal costs.
The internal costs also include the normal profit of the entrepreneur. (An entrepreneur's normal profit is the minimum fee required to retain entrepreneurial talent.)
Profit based on data accounting, represents the difference between income from various activities and external costs.
Gross profit is defined as the difference between the proceeds from the sale of goods, products, works, services (minus VAT, excise taxes and similar mandatory payments) and the cost of goods, products, works and services sold. Revenue from the sale of goods, products, works and services is called income from normal activities. The costs of producing goods, products, works and services are considered expenses for ordinary activities. Gross profit is calculated using the formula
Where VR- revenues from sales; WITH– cost of goods, products, works and services sold.
excluding administrative and commercial expenses:
Where R at– management costs; R To– commercial expenses.
Profit (loss) before tax– this is profit from sales taking into account other income and expenses, which are divided into operating and non-operating:
Where WITH bed – operating income and expenses; WITH vdr – non-operating income and expenses.
Profit (loss) from ordinary activities can be obtained by subtracting from profit before tax the amount of income tax and other similar mandatory payments (the amount of penalties payable to the budget and state extra-budgetary funds):
Where N– amount of taxes.
Net profit is profit from ordinary activities taking into account extraordinary income and expenses (Fig. 20):
Where H etc. – extraordinary income and expenses.
End of form
Product profitability(rate of profit) is the ratio of the total amount of profit to the costs of production and sales of products (the relative amount of profit per 1 ruble of current costs):
Where C- unit price; WITH- unit cost of production.
Production profitability (total) shows the ratio of the total amount of profit to the average annual cost of fixed and standardized working capital (the amount of profit per 1 ruble of production assets):
Where P– amount of profit; OS Wed- average annual cost of fixed assets; OS Wed– average working capital balances for the year.
This indicator characterizes the efficiency of the production and economic activities of the enterprise, reflecting at what amount of capital used a given amount of profit was obtained.
Problem 1
When creating the enterprise, its owner invested 200 thousand rubles. The production process is carried out in a building that he rented out before organizing the enterprise. The rent was 50 thousand rubles/year. Before the organization of the enterprise, its founder was a hired manager with an annual salary of 100 thousand rubles.
The activities of the established enterprise are characterized by the following indicators:
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Indicators |
Meaning |
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Production volume, units |
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Price (excluding VAT), rub./unit. |
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Average annual cost of fixed assets, thousand rubles. |
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Average working capital balances, thousand rubles. |
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Costs, thousand rubles: material on wages of employees amount of accrued depreciation |
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Income from the sale of excess property, thousand rubles. |
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Interest paid for the loan, thousand rubles. |
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Taxes paid from profits, % |
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Rate on time deposits, % |
Calculate: profit from product sales, gross profit (before tax), net profit; profitability of the enterprise (production); product profitability. Justify the answer to the question about the advisability of creating your own enterprise (calculate economic profit).
Solution
Let's calculate the profit from product sales:
P R= 1,000 × 10,000 – (250,000 + 150,000 + 160,000 + 140,000) =
300,000 thousand rubles.
Let's determine gross profit:
P shaft= 300 + 50 – 10 = 340 thousand rubles.
Let's calculate the net profit:
P h= 340 – 340 × 0.24 = 258.4 thousand rubles.
The profitability of the enterprise will be
R O= 300 / (600 + 200) × 100 = 37.5%.
Product profitability
R P= 300 / 700 × 100 = 43%.
Economic profit is calculated as accounting profit minus internal costs, namely: interest on a time deposit that could be received on invested funds; rent; lost wages of the owner of the enterprise. Thus, the economic profit will be
258.4 – 200 × 0.18 – 50 – 100 = 72.4 thousand rubles.
Test control
1. It is advisable to calculate economic profit
Beginning of the form
when preparing company reports; for tax purposes; when opening a new enterprise or a new type of activity;
End of form
2. Gross profit is
Beginning of the form
the difference between revenue from the sale of products (works, services) and the cost of products (works, services); profit from sales of products taking into account other income and expenses; enterprise profit minus taxes;
End of form
3. The main activity of a manufacturing enterprise cannot be ?
Beginning of the form
change in cost structure; changes in working conditions; violation of economic discipline;
4 . Is it possible to compare the profitability of production of enterprises of different sizes?
Beginning of the form
such a comparison is unfair, enterprises use different resources; such a comparison is justified if profitability is calculated for enterprises producing the same products; such a comparison is legitimate, since profitability is a relative indicator;
End of form
5. Product profitability shows
Beginning of the form
what profit does each ruble of sold products bring? production efficiency of each type of product; efficiency of production and economic activities;
End of form
6. The profitability of an enterprise will increase if it increases
Beginning of the form
the amount of working capital; cost of fixed assets; profit;
Profit from the sale of products (works, services) - is defined as the difference between the proceeds from the sale of products (works, services) without value added tax and excise taxes and production and sales costs included in the cost of products (works, services)
Profit is the main source of financial resources of an enterprise. Making a profit is the most important condition for the operation of an enterprise. An enterprise makes a profit if revenue exceeds cost; if costs exceed revenue, then the enterprise suffers losses.
There are three sources of profit:
profit from the sale of finished products (works, services) of the main activity of the enterprise; is defined as the difference between sales revenue in current prices excluding VAT and excise taxes and the costs of production and sales of products;
profit from other sales, i.e. profit from the sale of retired fixed assets, from the sale of auxiliary and side workshops, from the sale of excess stocks of raw materials and materials;
non-operating profit, i.e. rental income, income from securities transactions, fines, penalties, penalties.
At each enterprise, four profit indicators are formed, which differ significantly in size, economic content and functional purpose.
The basis for all calculations is balance sheet profit - the main financial indicator of the production and economic activity of the enterprise.
For tax purposes, a special indicator is calculated - gross profit, the same as balance sheet profit.
Based on gross profit, taxable profit is calculated.
Profit is not taxed. The part of the balance sheet profit remaining at the disposal of the enterprise after taxes and other payments have been made to the budget is called net profit. It characterizes the final financial result of the enterprise.
Profitability - profitability, profitability of the enterprise.
Profitability is a general indicator that characterizes the work of an enterprise. Associated with such indicators as cost, finished products, production volume; reflects the use of the main production and working capital of the enterprise, shows how financial activities are carried out at the enterprise.
There are two options for measuring profitability (rate of return):
the ratio of profit to current costs - the costs of the enterprise (cost);
the ratio of profit to advanced investments (fixed production assets and working capital).
Both meters are interconnected by the indicator of the turnover rate of advanced investments.
The rate of profitability of an enterprise can be calculated using the following formula:
Where P - volume of production, thousand rubles;
C- price of a unit of production, thousand rubles;
WITH - cost of production, thousand rubles;
OPF - cost of fixed production assets, thousand rubles;
OS- cost of working capital, thousand rubles.
In the practice of enterprises, a number of profitability indicators are used.
Product profitability can be calculated for all products sold and for individual types. In the first case, it is defined as the ratio of profit from the sale of products to the costs of its production and sale. The profitability of all products sold is also calculated as the ratio of profit from sales of marketable products to revenue from sales of products; in relation to balance sheet profit to revenue from sales of products; in relation to net profit to revenue from product sales. Profitability indicators for all products sold give an idea of the efficiency of the enterprise's current costs and the profitability of products sold. In the second case, the profitability of individual types of products is determined. It depends on the price at which the product is sold to the consumer, and the cost of this type of product.
The profitability of production assets is calculated as the ratio of book profit to the average annual cost of fixed production assets and material working capital. This indicator can also be calculated using net profit.
The return on investment in an enterprise is determined by the value of the property at its disposal. The calculation uses balance sheet and net profit indicators. The value of the property is determined by the balance sheet. In addition to profit, when calculating the return on investment, you can use revenue from product sales. This indicator characterizes the level of sales per 1 ruble of investment in the property of the enterprise. The return on equity of an enterprise is determined by the ratio of net profit to its own funds, determined from the balance sheet. It is advisable to calculate the return on long-term financial investments. The profitability of long-term financial investments is calculated as the ratio of the amount of income from securities and equity participation in other enterprises to the total volume of long-term financial investments. It is interesting to compare the obtained result with the profitability of production assets. In some cases, it may be higher than the profitability of production assets.
The main tasks of analyzing profit and profitability in public catering enterprises are the same as in industrial enterprises. Profit is one of the indicators of the financial activity of an enterprise and therefore profit analysis is carried out according to indicators of economic analysis.
Profit planning is carried out separately for all types of activities of the enterprise. In the process of profit planning, all factors that may influence financial results are taken into account.
In conditions of stable prices and the ability to predict business conditions, profit plans are usually developed for a year. Businesses can also make quarterly profit plans.
The object of planning is the elements of balance sheet profit. In this case, planning profits from the sale of products (performance of work, provision of services) is of particular importance.
In practice, various profit planning methods are used.
Direct counting method. With direct accounting, the planned profit on products to be sold in the coming period is determined as the difference between the planned revenue from the sale of products at current prices (excluding VAT, excise taxes, trade and sales discounts) and the full cost of products sold in the coming period. Most effective when producing a small range of products. The advantage of this method is its simplicity, but it is more appropriate to use it when planning profits for the short-term period.
Analysis of the profitability limit allows us to assess the relationship between planned profit and the elasticity of the enterprise in relation to fluctuations in the amount of expenses during capital turnover. Usually a system of graphs is constructed showing this dependence. Calculations are made using the following formulas:
Minimum revolution = DC consumables : (1-% fixed costs) : 100 or
Minimum about. = Post. consumables : (1-% variable flow) : plan. capital turnover
The gap that exists between the minimum turnover required to cover expenses and the planned turnover is important.
The forecast of return on invested capital is based on an analysis of the ratios of the following quantities:
Working capital + Capital investments = Invested capital,
Coef. volume of capital = Working capital: Invested capital,
Coef. profit = Capital turnover: Cost,
Coef. profitability = Profit: Capital turnover,
Return on Equity = Capital Turnover: Capital Employed H
Profit: Capital turnover Ch 100.
Liquidity overlap analysis is based on the ratio of enterprise costs, which are cash expenses, and depreciation. In this case, the minimum amount of turnover necessary to maintain the liquidity of the enterprise is determined.
The analytical method of profit planning is based on the construction of multifactor models. It takes into account the influence of various factors on the performance of the enterprise.
To assess the performance of a business, profits and profitability for a certain period are analyzed. How are these indicators interconnected? What formulas are they used to calculate? Details below.
What is profit and profitability of an enterprise?
In the context of the topic, profit is the final monetary result of an organization's activities. The absolute value is calculated as the difference between the income received during the period and the total expenses incurred, including data on the main and additional areas of business. Depending on which costs are taken into account, a distinction is made between gross profit, from sales, before tax and net.
To accurately assess the effectiveness of activities, in addition to the profitability indicator, it is also necessary to analyze profitability. What it is? The profitability of an enterprise characterizes the level of profitability attributable to a given indicator. The latter is used by the amount of revenue, PF (fixed assets), equity capital, SAI (non-current assets), etc. For the analysis, calculations are carried out using generally accepted formulas, one of the components of which is profit, and the second is a given indicator.
Profit and profitability indicators - calculation formulas
How to determine profitability? The formula is given below. The answer depends on what parameter of the enterprise’s activity is being analyzed. Thus, the profitability of sales based on gross profit is calculated by one method, and on profit from sales - by another.
Return on sales based on sales profit - formula
RP = Profit from sales / Revenue (excluding VAT) x 100.
When calculating the RP, accounting data is taken from f. 2 of the “Report on Financial Results” on pages 2200 and 2110. The resulting value characterizes exactly how much profit is generated for each ruble earned by the company. In this case, it is necessary to take into account not only the main costs in the form of the cost of sold products (works or services), but also additional ones in the form of managerial and commercial ones. If you want to determine gross profit margin, the calculation methodology will change slightly.
Gross Profit Margin – Formula
RP = Gross profit / Revenue (excluding VAT) x 100.
For calculations, information from f. 2 “Reports on financial results” on pages 2100 and 2110. Accordingly, this indicator is more generalized, since only costs at cost are included in the calculations. Additional costs in the form of commercial and administrative expenses are not incurred. Other profitability indicators can be determined in a similar way.
Return on assets - formula
RA = Net profit / Average assets for a given period x 100.
The asset ratio may change. For example, if you need to analyze non-current assets, data is taken from form 1 of the “Balance Sheet” under section. I. If current assets are assessed, it is necessary to calculate the average value according to section. II. If you are evaluating investments, you should use the indicators of total assets on page 1600. All profitability ratios of this group characterize how much profit each ruble of certain assets earned in a given period. To calculate the average denominator values, the arithmetic average of the opening and closing balances is calculated.
SK profitability (equity capital) – formula
RK = Net profit value / SK value x 100.
This indicator helps to assess how effective the investment of capital is for the owners of the enterprise. The resulting value characterizes how much profit accrues for each placed (invested) ruble of capital. If it is necessary to analyze the success of raised funds as well, the formula is adjusted to the value of long-term liabilities (LT):
Return on equity and invested capital = Net profit / (SC + DO) x 100.
How to conduct profitability and profitability analysis - example
Management analysis of the profit and profitability of an enterprise is carried out over a certain period of time. Suppose it is necessary to determine the RP for gross profit for 2017 for two organizations. Sources are in the table.
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Index |
Enterprise 1 |
Enterprise 2 |
Difference (in rubles / in %) |
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850 000,00 / 37,77 |
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Cost price |
1 090 000,00/ 68,12 |
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Gross profit |
240 000,00 / -36,92 |
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RP by VP = (VP / V) x 100 |
Thus, despite the fact that Enterprise 2 has revenue of RUB 850,000.00. more, which is 37.77%, the profit for the period is less by 240,000.00 rubles, which is 36.92% (compared to Enterprise 1). The calculated RP coefficient confirms the decrease in the level of operational efficiency of Enterprise 2. Consequently, Enterprise 1 has almost twice the quality of sales than Enterprise 2.
JSC "Arsenal" (EXAMPLE)
as of 01/01/2015
Profitability and profitability are indicators of the effectiveness of an organization.
Profitability characterizes the ratio (level) of income to advanced capital or its elements; sources of funds or their elements; the total amount of current expenses or their elements. The profitability indicator indicates how many rubles of income the organization received for each ruble of capital, assets, expenses, etc.
Profitability characterizes the ratio (level) of profit to advanced capital or its elements; sources of funds or their elements; the total amount of current expenses or their elements. Profitability indicators reflect the amount of profit received by the organization for each ruble of capital, assets, income, expenses, etc.
Calculation of profitability indicators
| Indicator name | for 2013 | for 2014 | change |
| basis | report | ||
| 1. Return on assets | 3.002 | 3.714 | 0.712 |
| 2. Return on equity | 7.388 | 7.067 | -0.321 |
| 3. Return on debt capital | 5.058 | 7.826 | 2.768 |
| 4. Profitability of production | 2.349 | 2.42 | 0.071 |
| 5. Profitability of expenses for ordinary activities | 0.991 | 1.106 | 0.115 |
| 6. Return on total expenses | 0.981 | 1.1 | 0.119 |
The amount of income received by the organization per each ruble of investment in its assets increased by 0.712 rubles. and amounted to 371.4 kopecks per ruble of funds received.
Income receipts per each ruble of funds raised in the reporting period increased by 2,768 rubles, i.e. to the level of 782.6 kopecks per ruble of borrowed funds.
The amount of revenue received by the organization per each ruble of the cost of products sold (production expenses) increased and amounted to 2.42 rubles.
The amount of revenue received by the organization per each ruble of total expenses for ordinary activities (cost of production and sales) increased and amounted to 1,106 rubles.
The level of income per each ruble of total expenses of the organization in the reporting period increased to 1.1 rubles.
Thus, in the period under study, there was an increase in almost all profitability ratios, which indicates an increase in the efficiency of using funds raised to carry out financial and economic activities.
Calculation of main profitability indicators
| Indicator name | for 2013 | for 2014 | change |
| basis | report | ||
| Economic profitability | |||
| 7. Return on total assets | -0.057 | 0.336 | 0.393 |
| 8. Efficiency of non-working capital | -0.195 | 1.036 | 1.231 |
| 9. Return on working capital | -0.062 | 0.355 | 0.417 |
| Financial return | |||
| 10. Return on equity | -0.116 | 0.503 | 0.619 |
| 11. Return on invested capital | -0.106 | 0.478 | 0.584 |
| 12. Profitability of permanent capital | -0.061 | 0.653 | 0.714 |
| 13. Return on investment | -0.066 | 0.468 | 0.714 |
| 14. Return on debt capital | -0.041 | 0.707 | 0.748 |
| Profitability of production and sales | |||
| 15. Profitability of production and sales of expenses for ordinary activities | -0.009 | 0.106 | 0.115 |
| 16. Profitability of total expenses | -0.015 | 0.077 | 0.092 |
| 17. Profitability of production | -0.02 | 0.232 | 0.252 |
| 18. Profitability of sales | -0.009 | 0.096 | 0.105 |
| 19. Profitability of gross output | 0.574 | 0.587 | 0.013 |
Return on total assets characterizes the efficiency of use of all property of the enterprise. An increase in the indicator by 39.3% indicates a growing demand for goods and the accumulation of assets, which is positive.
Return on non-working capital characterizes the efficiency of using the organization's fixed assets, determining how well the total volume of available fixed assets corresponds to the scale of the organization's business. The efficiency of using non-working capital increased by 123.1%, which may indicate both the full utilization of equipment and the lack of reserves, as well as a significant degree of physical and moral wear and tear of outdated production equipment.
Return on working capital reflects the efficiency of using the organization's working capital. It determines how many rubles of profit accrue per ruble invested in current assets. The return on working capital ratio in the reporting period increased by 41.7 and amounted to 35.5%, which indicates an increase in the efficiency of using working capital and a decrease in the likelihood of doubtful and bad receivables, and a decrease in the degree of commercial risk.
From the point of view of shareholders, the most important assessment of the effectiveness of an investment is the availability of return on invested capital. The indicator of profit on the capital invested by shareholders (owners) is called return on equity. During the reporting period, return on equity increased by 61.9 points, i.e. the return on investment of the owners has increased, which has increased the investment attractiveness of this enterprise.
Return on invested capital (return on investment) characterizes the efficiency of the company's operating and investment activities; shows how competently managers work with debt and equity capital. An increase in these indicators indicates a targeted policy of the enterprise aimed at increasing the efficiency of capital use.
Return on permanent capital reflects the efficiency of using capital invested in the company's activities for the long term. There is an increase in this indicator by 71.4%, which is undoubtedly a positive result.
Return on debt capital reflects the amount of profit per ruble of borrowed funds. In the reporting period, the return on debt capital was at the level of 70.7%.
The profitability of expenses for ordinary activities reflects the amount of profit from sales per each ruble of total expenses for ordinary activities (cost of production and sales). During the reporting period, the profit from each ruble spent on production and sales of products amounted to 10.6%, which is 11.5 points higher than in the same period last year. Thus, the efficiency of production activities (cost recovery) has increased.
Return on total expenses is the amount of net profit received by the organization for the analyzed period, per each ruble of total expenses. The cost recovery increased by 9.2 kopecks of net profit per ruble of total costs.
The profitability of production is the amount of profit per each ruble of the cost of products sold (production expenses). There is an increase in production profitability.
Return on sales characterizes the efficiency of entrepreneurial activity: how much profit does an enterprise have per ruble of sales. Gross profitability reflects the amount of gross profit per each ruble of sales revenue. When assessing the values of these indicators, it should be borne in mind that the dynamics of the ratio of income and expenses depends not only on the efficiency of the use of resources, but also on the accounting principles applied at the enterprise. In the case under consideration, there is an increase in the return on sales indicator by 10.5%, which, undoubtedly, is a positive result.
The share of gross profit in revenue increased by 1.3% and amounted to 58.7%.
Additionally, you can analyze the dynamics of profitability indicators, calculated as the ratio of net profit (profit before tax) for a certain period to sales volume expressed in cash for the same period.
Any economic activity is carried out taking into account indicators, the main of which are profitability and profit from commercial activities. Profit is the result of the difference between income and expenses. This indicator is ultimately key in determining business efficiency.
Let’s look at the basic concepts of how profit and profitability differ. Profit is a monetary reward as a result of the financial activities of an enterprise, but profitability is a relative indicator (%) that reflects the level of efficiency in the use of all labor, material and financial resources.
How to calculate profit and profitability
One of the most popular theories that explains the level of profit is the theory of surplus value from K. Marx. He said that additional value is created already at the stage of production of another product by “labor power”. What does surplus value consist of? It includes wages for production employees, expenses associated with loans, taxes and rent. Therefore, the concept of profit fully reflects the essence of surplus value.
Types of profit
In economic theory, there is net profit (the amount without taxes and payment of various fees) and gross (total) profit.
To calculate them, use the following formulas.
Gross Profit Formula
VP = BH – S, Where
VP – gross profit;
BH – net income from the sale of services or sales of goods;
C is the cost of goods or services.
Net profit formula
PP = VP - ∑ costs - ∑ taxes, Where
PE – net profit;
VP – gross profit;
∑production costs;
∑ taxes, fines, penalties and various insurance payments, loans.
Profitability reflects the efficiency of all resources taken into account, as a percentage. The profitability ratio itself can be obtained as a result of calculations based on the ratio of profits to resources.
Types of profitability indicators
They distinguish return on capital, fixed assets, assets, profitability of production, sales and others.
Let's look at the main two indicators.
Sales return formula
It shows the percentage of surplus value for each unit of money earned.
RP=CP/OP, Where
RP – return on sales;
PE – net profit;
OP – sales volume.
Production profitability formula
Thanks to this formula, you can find out how much profit a company receives from each unit of money spent on the production and sale of goods.
RP = P/∑costs, where
RP – production profitability;
P – profit from the sale of goods and services;
∑ costs – the amount of costs for production.
Reviews and comments
Thank you very much for the information collected. I can also add that in economic theory there is the concept of efficiency and production effect. Effect is the result of production, and efficiency is the ratio of results to costs. The main performance indicators are capital and material intensity, which are calculated as the ratio of the result (in currency) to the cost of materials (in currency).
Profitability is a benefit, and here you are no longer interested in a specific number, but in the result. Whether this or that business is profitable or not. And profit is expressed in specific figures. although here income matters more.
Oh, somehow everything is complicated. Income and expense. If the Balance is in plus, then there is a profit... if in the minus, then there is a loss... Profitability, in my opinion, implies receiving a guaranteed income in a certain period of time. When all the costs of organizing the business itself have been covered, sit back and make a profit. If the profit is good, then the business is profitable; if the profit is cheap, then there is no time to waste.
If the expected profit can still be somehow foreseen at the initial stage, then profitability is most likely only with the passage of time and the promotion of the business itself, although I may be wrong in my estimates.
Profitability is an indicator that does not require special precision and determines only the possibility of extracting any net profit from an enterprise, be it 1 kopeck or hundreds of millions.
Profit is the result of the economic and financial activities of an enterprise and is calculated as the difference between the price of the product, or rather the proceeds from its sale, and its cost. In other words, profit is the net income of an enterprise. The profitability of an enterprise evaluates the efficiency of the production and economic activities of a given enterprise, characterizes the level of return on costs and the degree of use of resources. It is equal to the ratio of net profit to equity capital in a given unit of activity.
Profit is good. Only many enterprises are trying to work, as they say, “to zero.” In this case, there is a “saving” on income tax. By the way, in Ukraine they already pay tax on losses. So neither profit nor loss is profitable today!
Miledan, are you serious about the loss tax? How can you pay anything when the company doesn’t even break even? And how this tax was considered then, why exactly, is not at all clear. Well, with such taxation, I do not envy entrepreneurs in Ukraine. When we had a default in our country, I didn’t hear about this.
Seriously! They count from the difference between income and expenses! At the company where I work now they are actively fighting losses. Moreover, we even began to tax pensions. If a pensioner works - 15%, if the pension is above 3000 UAH, then 20%! This probably doesn’t exist in any civilized country in the world!
When there is no profit, then income may be equal to expenses or even expenses will be greater than income. I don’t understand where the difference will come from. Or is it the opposite difference, negative. Struggling with low efficiency in production? Still unrealistic.
Previously, my mother told me, the income tax was such that from a hundred rubles there were measly pennies left. And from here it never occurred to anyone to strain too much and exceed the plan.
I agree with you - for businessmen such a decision is complete nonsense. But it’s very convenient for the state. In this case, most likely, the tax is levied on the profit itself. That is: you earned $10,000 and spent $30,000. So the tax will most likely be taken from $10,000.
Some countries have a similar tax system. The higher the income, the higher the tax.
