Profit, being an absolute indicator, does not show the level of efficiency of the organization and does not allow for a comparative analysis of the results of activities of business entities that differ in scale of production, amount of capital, range of products, etc. For these purposes, a relative indicator is used, which represents general view the ratio of effect to cost is called profitability.
Profitability as an economic category expresses economic relations between business entities regarding the effectiveness of using capital factors. As an economic criterion, profitability characterizes the efficiency financial and economic activities of any economic entity relative to all others, regardless of the size and nature of the economic activity.
The methodology for determining profitability involves a variety of forms of expression for the numerator and denominator. This leads to the calculation of a large number of profitability indicators, which can be systematized based on various classification criteria - by subject of activity, by type of resource, by type of effect, by phase of activity, etc.
The system of profitability indicators, which allows you to evaluate the efficiency of an economic entity, includes (at a minimum) the following coefficients:
1) profitability of products (products) - defined as the ratio of profit from sales of products (works, services) to the total cost products sold.
Where Prp– profit from sales (from sales of products);
PSrp– full cost of goods sold.
The profitability of a product characterizes the amount of profit per ruble of costs for its production and sale. The product profitability indicator can be calculated both for the entire commercial products organization, and for its individual types, on the basis of which a decision is made to change the assortment: expanding the production of some types of products and discontinuing others. Based on the product profitability indicator, planning for the release of new types of goods is also carried out.
In addition to the above calculation methodology, product profitability can be calculated based on the net profit indicator, and without taking into account commercial and administrative expenses, that is, based on the cost of production;
2) profitability of sales (profitability of turnover, profitability ratio) - defined as the ratio of profit from sales to sales revenue according to the formula
Where Vrp– net revenue from product sales.
This indicator reflects the share of profit in revenue and characterizes the profitability of the organization’s core activities. Return on sales is also considered as a general indicator of the financial condition of an economic entity and influences investors' decisions about the advisability of investing in a given organization. The dynamics of profitability of sales depends on changes in prices, sales volumes and costs of production and sales of products. For example, an increase in profitability of sales may be due to an increase in product prices or a decrease in costs, and vice versa. Changes in profitability of sales may also be explained by differences in the rate of change in product prices and production costs. Therefore, it is believed that this profitability ratio characterizes the organization’s pricing policy.
Factor analysis of profitability of sales allows you to make a decision on the choice of ways to increase the efficiency of the organization (profit growth either by reducing costs, or by expanding production and sales).
The return on sales indicator can be calculated on the basis of net profit and is then called the net profit ratio. Return on sales based on net profit shows the amount of profit remaining at the disposal of the organization per unit of products sold;
3) return on assets (return on investment) - defined as the ratio of profit to the average value of the organization’s assets according to the formula
Where Pch- net profit;
A– amount of assets.
Depending on the task set when assessing efficiency, one or another profit indicator can be used as an indicator of effect. In most cases, the assessment is carried out based on profit before tax (balance sheet), net profit, and profit from sales.
Return on assets characterizes the efficiency of using funds invested in the activities of an organization and provides an assessment of the profitability of their investment. This indicator reflects the amount of profit per ruble of all expended economic resources. In addition, return on assets (calculated on the basis of net profit) determines the financial potential of an economic entity and the possibilities for its development.
Return on assets (and, accordingly, the efficiency of asset use) increases in the case of profit growth, a decrease in the need for basic and working capital ah or with the simultaneous influence of both factors. Analysis of return on assets allows us to identify the main factors affecting the profitability of activities, the directions of their influence, and also determine the measures necessary to improve the efficiency of using existing assets.
,
Where Koa – asset turnover ratio.
Asset turnover is defined as the ratio of sales revenue to the average value of assets for the analyzed period and shows the number of turnovers made by the organization's assets during the period, thereby characterizing the efficiency of their use. The formula shows the directly proportional dependence of return on assets on the profitability (profitability) of sales and the turnover rate of assets.
Typically, during the analysis of profitability of assets, the profitability ratios of current assets and the profitability of non-current assets are additionally calculated;
4) return on equity - shows the amount of net profit that the organization receives per monetary unit of invested own funds, characterizing the efficiency of their investment.
This indicator is of particular importance for the owners of the organization, since they are interested in the maximum profitable investment their funds and receiving due to this highest income. There is a proportional relationship between the value of the indicator and the amount of income received by the owners. The higher the return on equity, the big income can be received by owners, therefore return on equity reflects the degree of rationality and attractiveness of investing in a given area of activity, and has a decisive influence on the market value of the enterprise. This indicator is called the criterion for the profitability of the organization.
Return on equity is calculated using the formula
Where SK- equity.
The relationship between return on equity, return on assets and return on sales can be represented by the following formula:
where Msk is the equity multiplier. It shows how the organization’s assets increase when its equity capital increases by one unit (one ruble, one percent, etc.), and also characterizes the organization’s capital structure. The multiplier is defined as the ratio of assets to the organization's equity capital;
5) profitability of borrowed capital - reflects the feasibility and effectiveness of the use of borrowed resources, which must be taken into account when formulating a policy for attracting borrowed funds:
where ZK is borrowed capital.
The composition of borrowed capital takes into account the long-term and short-term obligations of the organization, the use of which is carried out on return and on a paid basis. This necessitates a comparison of the costs associated with their production and the effect of their use.
In addition to the above profitability indicators, which are among the basic ones, an organization can calculate many others. A specific list of coefficients is determined based on the goals and objectives of the analysis and the specifics of the organization’s activities.
Basic methods of planning profit and profitability
Profit planning is integral part financial planning and plays important role in ensuring the effective functioning of the organization.
An economically justified definition of profit allows you to correctly estimate the volume financial resources, investment opportunities, replenishment working capital, ensure timely settlements with the budget, banks, business partners, and employees. The implementation of the dividend policy and the formation of the market value of the organization depend on the volume of profit.
When planning an organization's profit, it takes into account general provisions on planning and specific features of activities, forms of ownership, organizational and legal forms, conditions of mutual offsets, etc. During planning, factors that will influence the activities of the enterprise in the planned period are taken into account - changes in production volumes, changes in assortment, changes in prices for production resources, for the organization's products, etc.
Profit planning includes:
Profit generation planning;
Planning the use of profits.
These are both independent and interrelated sections of the planning process.
The object of planning is balance sheet profit and its main elements: profit from the sale of products, profit from the sale of property and property rights, profit from non-sales operations.
Methods for planning financial results are currently not regulated, but the following basic methods are used in business practice:
1) direct counting method;
2) analytical method;
3) normative method;
4) programmed factor method;
5) economic-mathematical method.
1. Direct counting method- the simplest and most accurate method, especially convenient when the range of products of the enterprise is not too wide.
The disadvantages of the method include the difficulty of determining the impact of various economic factors on profit.
Besides, in modern conditions It is quite difficult for an enterprise to accurately determine the volume of sales of products and it is not always possible to set sales prices in advance. These considerations are the main obstacle to the application of this method.
Planning stages:
1) determination of the planned amount of profit from sales using the formula
,
Where Vrp– net revenue from product sales
SRP– total cost of goods sold
Also, profit from sales can be determined by the formula
Etc = 
,
Where Цpi – selling price of the i-th type of product;
Ci– cost price of the i-th type of product;
Ki– number of sales units of the i-th type of product.
If it is impossible to directly determine the volume of product sales or if there is a fairly wide range of products, the profit on sales can be determined based on the profit from the production of products using the formula
Prp = POng+ Ptp – Pokg
Where POng– profit in the balance of unsold products at the beginning of the planned year;
Ptp– profit from the production of commercial products for the planned year;
POkg– profit in the balance of unsold products at the end of the planned year;
2) planning of profit in carry-over balances can be carried out on the basis of the profitability of the reporting year;
3) determination of the planned amount of profit from the sale of property is carried out by direct calculation based on the expected sale price of the property planned for sale and its initial (residual) value. A list of property scheduled for sale is drawn up in advance;
4) determination of the planned amount of profit from non-operating operations can be carried out based on the ratio of profit from non-operating operations and the balance sheet profit of the enterprise that developed in the reporting year.
When determining the ratio, only non-operating income and expenses associated with normal conditions are taken into account economic activity, having a permanent nature;
4) determination of the planned balance sheet profit is made using the formula
Pbal = Prp + At + Air,
Where At– planned profit from the sale of property and property rights;
Air defense– planned profit from non-operating operations.
2. Analytical method– used when wide range products, as well as, if necessary, determining the influence of economic factors on profit margins.
The basic principle used when planning profit using this method is a focus on the level of costs or the level of basic profitability based on an analysis of the organization’s activities for previous periods.
2.1 Profit planning based on the level of basic profitability of manufactured and sold products (works, services) is carried out in the following order. Planning stages:
1) calculation of basic profit based on actual reporting data, adjusted for the result of random factors, etc.;
2) determination of basic profitability:
Where Pvsp– profit on the production of comparable products;
WITH– production cost of comparable products;
3) all comparable products of the planned year are recalculated to the cost of the reporting year based on the expected percentage of change
That = ,
Where That– production of products for the planned period at the cost of the reporting year;
T– production of products for the planned period at the cost of the planned year;
ΔС%– estimated change in cost as a percentage;
4) profit from the release of comparable products for the planned year is determined:
Ptps = ;
5) the planned profit is determined in the carry-over balances of unsold products - based on basic profitability. At the same time, the balances of unsold products at the end of the planned year must be recalculated to the cost of the reporting year;
6) the planned profit from the sale of property and property rights is determined using the methodology used in planning using the direct counting method;
7) the planned profit from non-operating operations is determined using the methodology used in planning using the direct counting method;
8) the planned profit from the sale of incomparable products is determined by the direct calculation method as the difference between the sales price and the cost of sold incomparable products or on the basis of the average level of profitability;
9) the planned balance sheet profit is determined:
Prp = Prps + At + Pvo + Prpn;
10) the influence on the amount of profit for the production of comparable products of economic factors is determined:
a) changes in the product mix (based on changes in the average level of profitability):
Δ P due to ass = T o × ΔR,
Where ΔR– change in the average level of profitability in percent;
b) change in the quality structure of products (based on changes in the grading coefficient):
Δ P due to quality = T o × K grade . ,
where K is grade. – change in the grade coefficient;
c) changes in product costs:
Δ P due to s/s = T o – T = ;
d) changes in product prices:
Δ P due to prices = ,
where T i is the volume of output i-th products, at which prices have changed;
Δ C i – price changes for i-th product in rubles.
2.2 In the second option of profit planning using the analytical method - based on the level of costs per 1 ruble of produced and sold products (works, services), profit calculations are carried out similarly to the calculation based on basic profitability. But instead of the basic profitability indicator, the basic cost indicator is used.
At the same time, the profit commercial release is planned equally for both comparable and incomparable products based on the amount of costs per one ruble of product cost:
Ptp = TP opt*(1 - Z) ,
Where TPopt– commercial products at wholesale prices (sales prices);
Z– costs per 1 rub. commodity products at wholesale prices (sales prices).
3. Normative method– is the basis for the implementation of a commercial budgeting system and is used if the organization has established norms and standards for the expenditure of resources for specific types of products and for the centers of responsibility of organizations.
In this case, the estimate (budget) of financial results is developed on the basis of the estimate of the cost of sales, the estimate of expenses for the period and the estimate of sales volumes. It also adds information about other income, other expenses and the amount of income tax.
An estimate of financial results can be drawn up for each profit center - individual divisions or structures for which it is possible to correlate the income they receive with the expenses incurred. The estimate of financial results for the organization as a whole is the result of the addition of all such estimates, and the main objective of this estimate is to ensure a given level of financial results, both in absolute form (profit) and in relative terms (profitability). If acceptable minimums for profit or profitability are met, the estimate is approved; if not, it is subject to revision based on private estimates in order to identify reserves for improving financial results for each individual profit center. Monitoring of the financial results estimate is carried out to ensure that the actual values of profit and profitability correspond to the planned ones. If deviations in this estimate are identified, control actions will be aimed not at adjusting the indicators of the estimate of financial results, but at adjusting the estimates that support it.
4. Programmed factor method of planning profit and profitability– one of the most promising in modern conditions, providing for planning of profit and profitability for several options for the economic activities of organizations. As a result, it is the profit and profitability indicators that determine the choice of business option, i.e., these indicators become the initial, target ones. Planning stages:
1) calculation of basic indicators for the previous year based on the reporting ones, adjusted to the conditions in force at the beginning of the planned year and freed from random factors;
2) setting goals for economic activity for the planning year.
At this stage, the company determines target options for business options for the next year. The goals of the enterprise should determine the groups of factors that will affect the profit of the planned year. Main integrated factors:
Changes in the volume of sales of comparable products at comparable prices;
Changes in the cost of comparable products;
Release of new incomparable products;
Changes in prices for the company's products;
Changes in prices for purchased inventory items;
Changes in the valuation of fixed assets and capital investments of the enterprise;
Changes in wages;
Change in profit from other sales and non-operating operations;
Changes in enterprise assets;
Changes in the ratio of equity and borrowed capital;
Structural shifts in production and costs.
All these factors can be supplemented and detailed if necessary;
3) forecasting inflation indices. The organization determines the estimated inflation indices for the planned year independently, based on its own information on price movements and the structure of costs and products. The main inflation indices reflect:
Changes in “sales prices” for products, works, services of the enterprise itself;
Changes in “purchase prices” for inventory items purchased by the enterprise;
Changes in the value of fixed assets and capital investments according to the balance sheet valuation;
Change in average wages due to inflation;
4) calculation of planned profit and profitability for options.
Profit is calculated on the basis of the basic balance sheet profit for the previous year, which is adjusted by the amount of factors established at the second stage of planning. With this planning method, the influence of each factor on future profits (including inflation factors) is clearly visible.
5) the choice of the optimal management option is carried out taking into account the obtained profit and profitability indicators. In addition, planned profit and profitability indicators can be the main criteria when optimizing an organization's planning decisions.
The presented method is based on current reporting and does not require a significant increase in the information base, with the exception of monitoring inflation indices. This also speaks in favor of this method and makes it promising.
5. Economic-mathematical method. It is used only in large or super-large organizations, where it is possible to use a large accounting information base, computer equipment and computer programs.
Indicators of planned profit are used by the organization when calculating the target sales volume, optimizing taxation, forming a dividend policy, etc. Therefore, profit planning is of interest not only for the organization, but also for its investors, creditors, business partners and is one of the determining factors for a successful commercial activities.
Questions for self-control
1. Reveal the importance of profit in the activities of an organization in a market economy.
2. Describe the main functions of profit.
3. Name the main factors influencing the formation and distribution of profit.
4. Describe the main types of profit and their relationship.
5. Describe the concept of profitability.
6. Name the main profitability ratios.
7. What is the relationship between return on assets and return on sales?
8. What are the advantages analytical method profit planning?
9. Name the main methods of profit planning.
10. What is the relationship between profit and profitability indicators?
Current assets are the most mobile part of capital, the state of which largely determines the financial condition of the enterprise as a whole.
Classification of current assets
| Signs of classification of current assets | Classification groups | Name of certain types of current assets or corresponding sections and items of the balance sheet |
|---|---|---|
| Depending on the functional role in the production process | a) working capital | raw materials, materials, fuel, work in progress, semi-finished products own production, Future expenses |
| b) circulation funds | finished products, shipped goods, funds in accounts and in the cash register, funds in settlements with other enterprises and organizations | |
| Depending on the sources of working capital formation | a) own working capital | difference between total section III balance sheet “Capital and reserves” and section I of the balance sheet “Non-current assets” |
| b) borrowed funds | bank loans, accounts payable | |
| Depending on liquidity (rate of conversion into cash) | a) absolutely liquid funds | |
| b) quickly realizable working capital | normal accounts receivable | |
| c) slowly realized working capital | inventories less deferred expenses | |
| Depending on the risk of capital investment | a) capital with minimal investment risk | cash, short-term financial investments |
| b) capital with low investment risk | accounts receivable, excluding doubtful ones, productive reserves minus stale products, finished products minus those not in demand | |
| c) capital with average investment risk | work-in-process inventories, low-value and wear-and-tear items | |
| d) capital with high investment risk | deferred expenses, doubtful accounts receivable, stale inventories, products that are not in demand |
The stability of the structure of current assets indicates a stable, well-established process of production and sales of products and, conversely, significant structural changes are a sign of unstable operation of the enterprise.
Let's give example of assessing the composition and structure of current assets in dynamics for the reporting period using the example of a conditional enterprise.
An example of assessing the composition and structure of current assets
| Indicators | Absolute values, thousand rubles. | Specific gravity, % | Dynamics | ||||
|---|---|---|---|---|---|---|---|
| for the beginning of the year | at the end of the year | for the beginning of the year | at the end of the year | in absolute terms | V specific gravity | as a percentage of the change in total assets | |
| Reserves | 112470 | 134445 | 80,30% | 84,00% | 21975 | 3,60% | 109,30% |
| VAT on purchased assets | 2445 | 3542 | 1,70% | 2,20% | 1097 | 0,50% | 5,50% |
| Accounts receivable for which payments are expected in more than 12 months. | 0 | 0 | 0,00% | 0,00% | 0 | 0,00% | 0,00% |
| Accounts receivable for which payments are expected within 12 months. | 24973 | 21631 | 17,80% | 13,50% | -3342 | -4,30% | -16,60% |
| Short-term financial investments | 0 | 0 | 0,00% | 0,00% | 0 | 0,00% | 0,00% |
| Cash | 145 | 528 | 0,10% | 0,30% | 383 | 0,20% | 1,90% |
| Other current assets | 0 | 0 | 0,00% | 0,00% | 0 | 0,00% | 0,00% |
| Total current assets | 140033 | 160146 | 100,00% | 100,00% | 20113 | 0,00% | 100,00% |
Elements of working capital continuously move from the sphere of production to the sphere of circulation and return to production again. Part of the working capital is constantly in the sphere of production (inventory, work in progress, finished products in the warehouse, etc.), and the other part is in the sphere of circulation (shipped products, accounts receivable, securities, cash, etc. ). Therefore, the composition and size of the organization’s working capital are determined not only by the needs of production, but also by the needs of circulation.
The need for working capital for the sphere of production and for the sphere of circulation is not the same when different types economic activity, and even for different organizations in the same industry. This need is determined by the material content and speed of turnover of working capital, production volume, technology and organization of production, the procedure for selling products and purchasing raw materials and other factors.
Methods for determining the need for working capital
To calculate the financial and operational requirement (FEP) for working capital, the following methods are used: analytical, direct counting, coefficient.
Analytical (experimental-statistical) method lies in the fact that FEP are calculated over a number of years (3-5 years) and averaged. Calculations are based on the relationship:
FEP = 3 + Db - Kp
where, 3 - inventories and other current assets from section II of the balance sheet asset; DB - accounts receivable; Kp - short-term liabilities (results of section V of the balance sheet).
Direct counting method is that, using standards, they calculate the need for each element of working capital:
- productive reserves;
- expected work in progress;
- expected balances of finished products in the warehouse;
- expected receivables;
- necessary funds and securities.
Coefficient method consists in the fact that at first calculations are carried out using the direct counting method, and then adjusted in accordance with the expected dynamics of growth in production volumes. Depending on the characteristics of formation, working capital is divided into standardized and non-standardized. Normalized working capital includes, as a rule, all working capital, as well as that part of the circulating capital that is in the form of remnants of unsold finished products in the organization’s warehouse. Normalized working capital is reflected in financial plans organizations. Non-standardized working capital includes all other elements of circulation funds, i.e. products sent to consumers but not yet paid for, and all types of funds and settlements.
Accelerating the turnover of working capital and accounts receivable helps reduce the need for working capital (absolute release), increase production volumes (relative release), and increase profits, which creates conditions for improving the overall financial and economic condition of the enterprise. To assess the efficiency of using working capital, we apply the following indicators:
1. Working capital turnover ratio(Kob), showing the number of revolutions made by working capital during the reporting period, the calculation formula is next view:
Kob = Vr/Oss
where, Вр - sales revenue minus value added tax and other mandatory payments; OSS is the average cost of the enterprise's working capital for the analyzed period (year).
2. Duration (value) of turnover in days (Dlo) is the time during which working capital is returned to cash:
Dlo = Oss*D/Vr
where, D is the number of days in the reporting period.
In the practice of calculations when calculating turnover indicators, to simplify them, it is customary to consider the duration of any month as 30 days, any quarter as 90 days and a year as 360 days.
The peculiarity of this indicator in comparison with the turnover ratio is that it does not depend on the duration of the period for which it was calculated. For example, two turnovers of funds in each quarter of the year will correspond to eight turnovers per year, with a constant duration of one turnover in days.
3. Working capital consolidation ratio(Kzo), shows the amount of working capital per 1 rub. sales revenue:
Kzo = Oss/Vr
The economic meaning of the working capital consolidation coefficient is that it characterizes the amount of the average balance of working capital per one ruble of sales revenue.
Quantitative calculation of the capital turnover indicators of the conditional enterprise is carried out in the table according to the data of forms No. 1 and No. 2.
| No. | Indicators | Previous period | Reporting period | Dynamics |
|---|---|---|---|---|
| 1 | 2 | 3 | 4 | 5 |
| 1 | Revenue (net) from sales, rub. | 329 352 | 319 580 | -9772 |
| 2 | Number of days in the reporting period | 360 | 360 | X |
| 3 | One-day sales turnover (one-day sales), thousand rubles. (item 01/item 02) | 915 | 888 | -27,14 |
| 4 | Average cost of working capital, thousand rubles. | 179 460 | 150 089 | -29371 |
| 5 | Working capital turnover ratio (item 01/item 04) | 1,84 | 2,13 | 0,29 |
| 6 | Working capital consolidation ratio (clause 04/clause 01) | 0,54 | 0,47 | -0,08 |
| 7 | Duration of one turnover of funds in days (clause 04/clause 03) | 196 | 169 | -27,09 |
| 8 | The amount of all working capital released (-) or additionally attracted (+) compared to the previous year, thousand rubles. (clause 07, gr. 5 * clause 03, gr. 4) | X | X | -24046 |
When assessing profitability levels, the following indicators are used:
overall production profitability, calculated as the ratio of book profit to the average annual cost of fixed assets production assets inventories and costs;
profitability of sold products, calculated as the ratio of profit from sold products in wholesale prices of the enterprise.
The analysis of the level of profitability is carried out according to the elements included in the formula, i.e. the impact of changes in the amount of profit from the sale of the value of OPF and NOS at the level of profitability is revealed. Such analysis often distorts the economic meaning, because The values of fixed assets and normalized working capital in themselves do not show the efficiency of their use. Any increase in the cost of PF reduces the level of profitability.
The study of factors influencing the production profitability indicator is carried out in dynamics (in comparison with data for previous years).
The profitability of products must be analyzed over a number of years, identifying the influence of relevant factors.
Factors that mainly affect production profitability include:
profitability of products sold;
coefficient of capital intensity of production;
working capital consolidation ratio.
Let us now consider these factors in more detail.
The factors influencing the profitability of production include the profitability of products sold, the capital intensity of products (capital productivity), the coefficient of fixation of working capital (working capital turnover). To identify the influence of these factors, we transform the formula for calculating production profitability:
Let's divide both the numerator and the denominator by the amount of revenue from product sales:
We get R - profitability of products sold, or the share of profit per 1 ruble. sold products; Fe is the capital intensity, which can also be obtained as 1/N; N - level of capital productivity; Kz is the fastening coefficient, which can also be found as 1/K; K - turnover ratio.
The study of factors influencing the production profitability indicator is carried out in dynamics (in comparison with data for previous years). When assessing the influence of these factors, the following calculations should be performed. Overall change in production profitability (DRpr):
Including:
1) due to changes in product profitability -
2) due to changes in the capital intensity of products (capital productivity):
3) due to a change in the consolidation (turnover) coefficient of working capital:
The total influence of the three factors will give the overall change in production profitability:
Let us consider the described analysis methodology for specific example(Table 1.1).
The level of production profitability for the reporting year increased by 0.84 points: DRpr = 12.93-12.09 = 0.84. The influence of individual factors was as follows.
1. An increase in the profitability of sold products (works, services) led to an increase in the level of profitability of production by 0.31 kopecks. for every ruble of resources used:
2. Reducing capital intensity, i.e. an increase in capital productivity of fixed production assets led to an increase in production profitability by 0.47 kopecks. for every ruble:
Table 1.1. Profitability of production and its determining factors for the enterprise for the year
3. Reducing the coefficient of consolidation of working capital, i.e. acceleration of their turnover led to an increase in production profitability by 0.06 kopecks:
Thus, the overall increase in profitability for all factors analyzed
for every ruble of resources used.
This is the general change in production profitability compared to the data for the previous year (12.93-12.09 = 0.84 kopecks)
The profitability of individual products depends on their market prices and costs.
Let us consider the influence of these factors using the following example (Table 1.2).
Table 1.2. The influence of the market price and cost of the product on its profitability
The profitability of the product increased by 2%, this change was influenced by an increase in prices and higher costs. To determine the influence of each factor, we will make the following calculations.
where DR(P) is the change in the profitability of the product as a result of a change in price; economic financial profitability competitive
Conditional profitability of the product at the base cost and price of the reporting year;
Consequently, an increase in the market price led to an increase in the profitability of the product by 10.6%.
The increase in the cost of the product reduced its profitability by 8.6%.
The overall change in profitability for both factors was (%): 10.6+(-8.6) = 2, which corresponds to the data in Table. 1.2. (Note that an alternative analysis gives)
Thus, conducting a deep financial analysis activities of the enterprise will allow us to determine the potential capabilities of the company, their compliance with the current market conditions.
Profitability indicators are relative characteristics of the financial results and efficiency of an enterprise. They measure the profitability of an enterprise from various positions and are grouped in accordance with the interests of participants in the economic process and market exchange. Profitability indicators are important characteristics of the factor environment for generating profit and income of an enterprise. For this reason they are mandatory elements comparative analysis and assessment of the financial condition of the enterprise. When analyzing production, profitability indicators are used as a tool for investment policy and pricing.
The main profitability indicators can be grouped into the following groups:
Indicators calculated on the basis of profit (income);
Indicators calculated on the basis of production assets;
Indicators calculated on the basis of cash flows.
The first group of indicators is formed on the basis of calculating the levels of profitability (profitability) based on profit indicators that are defined in the enterprise’s reporting. Eg:
These indicators characterize the profitability (profitability) of sales. Using methods factor analysis the impact of price changes is determined
for products and their costs ( material costs) on changes in product profitability.
Let us denote the profitability of products of the base and reporting periods through and , respectively. By definition there is:
where is the profit from sales of the reporting and base periods, respectively;
Sales of products (works, services), in accordance with the reporting and base periods;
Cost of products (works, services), in accordance with the reporting and base periods;
Δ R- change in profitability for the analyzed period.
The influence of the factor of price changes on products is determined by calculation (using the method of chain substitutions):
Accordingly, the influence of the cost change factor on the change in profitability will be:
The sum of factor deviations will give the total change in profitability for the period:
The second group of indicators is formed on the basis of calculating profitability levels depending on changes in the size and nature of advanced funds: all production assets of the enterprise; invested capital (equity, long-term liabilities); share (own) capital. Eg:
The discrepancy between the levels of profitability according to these indicators characterizes the degree to which the enterprise uses financial levers to increase profitability: long-term loans and other borrowed funds.
These indicators are very practical. They meet the interests of various participants. Eg; the enterprise administration is interested in the return (profitability) of all production assets; potential investors and lenders are interested in the return on invested capital; owners and founders are interested in stock returns and so on.
Each of the listed indicators is easily modeled by the method of identical transformations based on factor dependence. For example, consider this obvious dependency:
This formula reveals the relationship between profitability of sales and capital productivity (an indicator of the turnover of production assets). The economic meaning of the connection is that the formula directly indicates ways to increase profitability: with low sales returns, it is necessary to strive to accelerate the turnover of production assets.
Let's consider another factor model of profitability.
As we can see, the return on equity (shareholder) capital depends on changes in the levels of return on sales, the rate of circulation of total capital and the ratio of equity and debt capital. The study of such dependencies has great evidentiary power for assessing the financial condition of an enterprise, assessing the degree of skill in using financial levers to improve the results of its activities. From this dependence it follows that, other things being equal, the return on equity capital increases with an increase in the share of borrowed funds of the enterprise in the total capital.
Let's look at an example (Table 5.3).
Table 5 .3
Analysis of the level of profitability of production
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indicators |
For the last swarm |
For the reporting year |
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1. Balance sheet profit, thousand UAH |
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2. Chip product sales, thousand UAH |
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3. Average annual cost of fixed assets, thousand UAH |
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4. Average annual balances of working capital, thousand UAH |
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5. Average annual cost of production assets, thousand UAH |
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6. Product capital intensity ratio, color. (Page 3 / Page 2) |
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7. Working capital consolidation coefficient, kopecks. (Page 4 / Page 2) |
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8. Profit per ruble of products sold, kopecks. (Page 1 / Page 2) |
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9. Enterprise profitability level,%, (page 1 / page 5) × 100 |
The profitability level for the reporting year was 91.6%, and for last year- 135.8%, then profitability decreased by 44.2 points.
The influence of factors that influenced changes in the level of profitability is determined based on the following calculations (by the method of chain substitutions):
1) an increase in the share of profit per hryvnia of sold products led to an increase in the level of profitability by 56.1 points (191.9 - 135.8), where
2) an increase in the capital intensity of products, that is, a decrease in the capital productivity of fixed production assets led to a decrease in profitability by 89.6 points (102.3 - 191.9), where
3) an increase in the coefficient of consolidation of material working capital, that is, a slowdown in their turnover, led to a decrease in production profitability by 10.7 points (91.6 - 102.3).
So, general decline profitability by factors is 44.256.1 - 89.5 - 10.7), which corresponds to the overall change in production profitability compared to last year.
The third group of profitability indicators is calculated on the basis of net cash inflow. Eg
The latest indicators give an idea of the company's ability to fulfill obligations to lenders, borrowers and shareholders in cash in cash. Profitability, calculated on the basis of cash flow, is widely used in developed countries. market economy. It is overwhelming because operations with cash flows is essential feature intensive type of production, a sign of the “health” of the economy and the financial condition of the enterprise.
Factor profitability models reveal the most important cause-and-effect relationships between indicators of the financial condition of an enterprise and financial results. Therefore, they are an indispensable tool for “explaining” (evaluating) the current situation.
Factor profitability models are also forecasting models financial stability managed enterprises. The need to foresee immediate and long-term development prospects is an urgent task for enterprises. The rate of production growth depends not only on demand, sales markets, enterprise capacity, but also on the state of financial resources, capital structure and other factors.
The most important limitation on the planned growth rate of an enterprise is the rate of increase in its equity capital, which depends on many factors, but primarily on the return on sales (factor X1), the turnover of total capital (balance sheet currency - factor X2), the financial activity of the enterprise in raising borrowed funds (factor X3) rates of distribution of profits for development and consumption (factor X4).
Thus, the growth rate of equity capital, characterizing the potential capabilities of an enterprise to expand production, can be represented by a multiplicative model of the relationship between the listed factors:
Where Y- equity growth ratio (equal to the ratio of profit allocated for accumulation to the average annual cost of equity capital);
The model reflects the action of tactical (factors X1, X2) and strategic (factors X3, X4) financial decisions. Properly Produced price policy, expansion of sales markets lead to an increase in the sales volume and profit of the enterprise, and increase the rate of circulation of its capital. At the same time, an irrational investment policy and a decrease in the share of borrowed capital can reduce the positive result of the first two factors.
This model is notable because it can easily be expanded to include new factors. Moreover, the manager’s field of view includes such important indicators of financial condition as liquidity, turnover of current (mobile) assets, and the ratio of current liabilities and capital.
The extended model for calculating the sustainable growth rate is as follows:
Where y - equity growth rate;
A - capital structure (ratio of balance sheet currency to average cost own capital);
b- the share of urgent liabilities in the capital of the enterprise (the ratio of the amount of urgent liabilities (current liabilities) to the balance sheet currency);
With- current liquidity ratio (ratio of current assets to current liabilities);
d- turnover of current assets (the ratio of net sales to current assets);
e - financial results from product sales per unit of sales (return on sales) (the ratio of net profit to net sales);
f- the rate of distribution of profit for accumulation (the ratio of profit allocated for investment to the amount of net profit).
The practical application of sustainable growth models is recommended in enterprise development planning, taking into account the risk of bankruptcy.
It is known that one of the criteria for bankruptcy is the unsatisfactory structure of the balance sheet, determined by the current liquidity ratio, the coverage ratio of current assets own funds and the amount of debt in equity. If we take all these coefficients at the standard level, and the rate of distribution of profit on accumulation is equal to 1.0, then the optimal value of the sustainable growth rate will be 0.5 return on current assets, or 0.05 return on own working capital.
These are very important conclusions from the analysis of formulas. But it is not the numerical characteristics that are important. The important thing here is that the rate of sustainable growth depends on very unstable parameters or factors. After all, the value of current assets, i.e. working capital and own working capital are very flexible and depend on many factors: the size of the business; industry affiliation of the enterprise, that is, type of activity; growth rate of product sales; working capital structures; the fate of added value in the price of the product; inflation; accounting policy of the enterprise; payment systems and so on. So, the stability of development becomes a derivative, and one can say without exaggeration, a direct consequence of the stability of the current economic activity of the enterprise.
