The production profitability ratio shows. Profitability of production: calculation, formulas, examples. Data for calculating profitability is taken from accounting reports, balance sheet

Business, whatever it is, requires costs. An entrepreneur, investing in a new project, expects a return in the form of high profits and its constant growth. To assess the investment efficiency indicator, business profitability is calculated. We will tell you in the article what it gives and how it is determined.

Each entrepreneur determines the need to calculate profitability for himself. Large companies employ an economist, whose responsibilities include regular calculations of operational efficiency and planning of further work taking into account the obtained values. In addition to total profitability, for this purpose, the net return on assets, return on fixed assets, investments, sales, personnel, equity and other ratios are calculated.

How is profitability determined?

Calculating the profitability of a business is not so difficult if you have ready-made financial statements at hand. Individual entrepreneurs who do not keep accounting records or are just planning to open their own business will have to bring everything together “by eye.” Profitability is calculated mainly as a percentage. The calculation formula is as follows:

Profitability of production = (Profit on balance / Costs of production and sales) x 100

This calculation will allow you to determine how much profit before taxes falls on 1 ruble of funds spent. For convenience, you can find a convenient online calculator online or download a special program. On average, the normal ratio is 15-35%, but highly depends on the specifics of the commercial activity. For retail trade, 10-15% is a decent result, but for the beauty or construction industry this figure will be small. For these areas you need to start from 50-100%, for legal services, trading in intangible assets - from 100%.

The above calculation shows the nominal value of profitability. There is also real profitability - the one that is determined taking into account inflation. To assess the purchasing power of an enterprise. When the indicator turns out to be low or even negative, this indicates a lack of operational efficiency and impending bankruptcy. A business with high profitability is considered promising, fully receiving a return on investment.

Factors influencing the level of profitability

Since profitability is a relative indicator, its value largely depends on internal changes in the company and external market conditions. The main ones:

• Labor productivity.
• Technical issues in production.
• Fluctuating prices for resources purchased by the enterprise, materials, third-party services, and labor.
• Changes in the assortment and prices of products sold due to changing demand and crisis.
• Seasonality, temporary equipment downtime or product defects.

The level of profitability can be increased by accelerating trade turnover, reducing costs, and rationally increasing prices. In any case, to stabilize the situation, a number of other economic indicators and points should be calculated and taken into account: labor productivity, product quality, the situation with competitors.

Example of profitability calculation

For better understanding, let us show a simple example of calculating the level of profitability using the above formula.

Initial data:

• Total expenses (purchase of raw materials, wages, rent, materials for work, fuels and lubricants, etc.) – 18 million rubles.
• Total income (revenue) – 22 million rubles.

First, let's calculate the profit: income - expenses = 4 million rubles.

Profitability = (4 million rubles/18 million rubles) x 100 = 22.2%

Calculations can be made per month, year, quarter. For convenience, profitability for each type of product or production department is often calculated separately.

It is important to compare indicators over time and take measures to improve them. Return on capital, personnel, assets and other things is also calculated separately. Economic analysis must be taken seriously. This is an opportunity to find out the company's weaknesses and improve its overall profitability.

Every businessman wants his enterprise to be successful and bring a stable high income. A number of financial and economic instruments are used to analyze production efficiency. They may differ in the complexity of the calculation, the availability of the necessary information, and the usefulness for the analytical inference process. One of the most important efficiency parameters is production profitability, the calculation formula for which is quite simple, and its contribution to understanding the economic situation at the enterprise is truly enormous.

What is enterprise profitability

Profitability (RO - returnon) is the most important indicator of the economic efficiency of the organization as a whole, or its use of capital and resources (financial, material, labor, etc.). The indicator allows you to conduct a detailed analysis of the economic activity of an enterprise, as well as compare the values ​​of economic efficiency with similar indicators of other enterprises, which allows you to draw conclusions about the success of a particular area of ​​the organization’s activities.

Unlike profit, the value of the profitability ratio is a relative indicator, which makes it possible to compare enterprises of different lines of activity and of different sizes. The coefficient allows you to compare the efficiency of a small enterprise consisting of five employees with the activities of a large factory with a staff of over a thousand people. And if a factory can easily outperform a tiny company in terms of profit, then relative indicators can show a completely different picture. In this regard, the profitability of an enterprise can be compared with the economic efficiency - the efficiency factor of the enterprise.

In the simplest terms, profitability demonstrates how much profit each ruble invested in the organization's resources or assets brings.

Economists take into account a large number of types of profitability, among which the main ones are considered to be:

• profitability of products/sales (ROTR/ROS – total revenue/sale),
• return on cost/production (ROTC – totalcost),
• return on assets (ROA – assets),
• return on investment (ROI – invested capital),
• profitability of personnel (ROL – labor).

How to calculate the indicator value

Profitability of production or cost is considered one of the main coefficients taken into account when analyzing the effectiveness of a particular production process. Many novice entrepreneurs may have a question: how to calculate the profitability of an enterprise or production.

The general formula for calculating production profitability is as follows:

ROTC=(PR/TC)*100%

Here PR is the profit from the sale (sales) of products, which, in turn, can be presented as the difference between the indicators of income (revenue) and expenses (full cost). PR=TR-TC.

The very value of total cost (TC, an abbreviation for totalcost) includes a complete list of enterprise costs. These may include costs for materials, payment of wages to workers and administrative and management personnel, payment for electricity and housing and communal services, costs of an advertising campaign, ensuring labor safety, purchasing consumables and fixed assets, and other expenses. In most cases, the lion's share of costs falls on the purchase of materials, so the main production is usually called material-intensive.

Expressed as a percentage, this indicator very clearly describes how effectively an organization uses production resources. In absolute values, you can see how many kopecks of profit from sales each ruble invested in the cost of the final product will bring to the enterprise budget.

The profitability of production can be calculated both for the entire enterprise as a whole, and for each direction of production, for individual workshops or types of products.

In the hands of an experienced analyst, such information can become a real treasure trove of useful information, allowing one to compare the efficiency of various production lines and the return on investment of a particular product. A competent manager will be able to draw conclusions for himself - the production volumes of which goods should be increased, and which ones, perhaps, should be stopped producing altogether.

What can a change in the coefficient tell you?

If you trace the dynamics of changes in production profitability over a certain period of time (several months or years), you can draw certain conclusions:

The coefficient increases:

• The quality of products is increasing.
• The profit of the enterprise increases.
• The cost of finished products is reduced

The coefficient decreases:

• The importance of production costs is growing.
• Product quality is getting worse.
• Production assets are used less efficiently.

Where to get the numbers for calculations

The information necessary for the calculation can be partially obtained from financial reporting data, and partially from accounting analytics. Thus, the value of balance sheet profit is stated in the income statement, or more precisely, in line 2300 of Form 2 “Profit (loss) before tax.”

Thus, based on the balance sheet data, the production profitability ratio can be calculated using the following formula (a calculation example in this case is extremely simple, so we will not give it):

Krp = line 2200 (Form 2) / line 2120 (Form 2) * 100%

How to use the indicator correctly

The profitability of an enterprise can become a universal tool that perfectly characterizes the economic health of a company and shows its success in comparison with its closest competitors. In the following situations, the ability to correctly “read” numbers and make far-reaching and correct predictions based on them can become a very valuable factor:

• In the process of enterprise management. A manager, armed with the values ​​of an enterprise’s profitability ratio for a certain time period, and also able to analyze their values ​​and dynamics, is able to quickly determine the weak and strong points of the production process.
• To forecast expected profits. Knowing the average profitability values, the analyst can predict with a fairly high degree of probability the amount of profit that a specific production line or the entire enterprise as a whole will bring.
• Attracting potential investors. Such a universal indicator as the overall profitability of an organization can become the best recommendation for investors. Knowing these ratios and the approximate amount of his future investment, the investor can easily calculate the expected amount of his benefit.
• In case of sale of the enterprise. If a company is put up for auction, high profitability ratios will help attract large buyers and present the trade object in the most favorable light.

What factors can influence the value of profitability?

There are a lot of such factors. They can be divided into two large categories - exogenous and endogenous. The following are considered exogenous:

• Level of competition in the market. Competition directly affects the price of finished products, and therefore the amount of profit.
• Geographical factor. The territorial location of production facilities can also have a significant impact on the price of manufactured goods.
• Features of tax policy. The tax policy of the state directly affects the amount of profit received from the sale of goods.
• Political factor. As an example, we can consider the sanctions imposed on the Russian Federation by a number of European and North American states. Some types of production lost markets and significantly reduced their profitability indicators. Others, on the contrary, got rid of foreign competitors, which affected their economic indicators in the most positive way.

Endogenous factors (in other words, not directly related to the production process) can be considered:

• Efficient and modern marketing and logistics services. Their work directly affects the costs of the enterprise.
• A set of measures aimed at eliminating harmful effects on the environment. If such measures are implemented in accordance with current legislation, the costs are included in the costs of the enterprise.
• Financial policy of the organization. This category is extremely multifaceted, has many aspects, and can have a significant impact on all profitability indicators.
• Creating conditions for carrying out work activities. A satisfied employee will always be able to do more than a dissatisfied one. This truism helps many insightful businessmen increase labor productivity and reduce the cost of producing a particular product.

In turn, endogenous factors that directly affect the profitability of an enterprise can be divided into two categories:

• High quality. Introduction of new technologies into the production cycle that save resources and increase labor productivity.
• Quantitative. Expanding staff, increasing production capacity, opening additional production lines.

Of course, all these factors can play their role only if they are economically justified. For example, if the number of products sold has been steadily declining over a long period of time, then there is no point in expanding the number of employees.

Example of calculating production profitability

Let's try to compare the indicators of production profitability ratios of two enterprises. Let's call them Enterprise 1 and Enterprise 2. As initial data we will use the total cost and revenue, the values ​​of which are presented in the table for clarity:

Profit from the sale of goods for each organization can be calculated as the difference between the values ​​of revenue and total cost:

PR1 = TR1 – TC1 = 2,500,000 – 800,000 = 1,700,000 rubles;

PR2 = TR2 – TC2 = 3,400,000 – 1,500,000 = 1,900,000 rubles.

It is clearly seen that the profit from sales is higher for the second enterprise. This means that in absolute terms, Enterprise 2 will receive more profit than Enterprise 1. But does this mean that it can be considered more successful and efficient? To answer this question, it is necessary to calculate a relative indicator of efficiency, which will be the profitability of production.

Applying the formula for calculating the profitability of an enterprise, we obtain the following values:

ROTC1 = (PR1 / TC1) * 100% = (1,700,000 / 800,000) * 100% = 212.5%

ROTC2 = (PR2 / TC2) * 100% = (1,900,000 / 1,500,000) * 100% = 126.6%

Here we see a completely different picture. The profitability of the first enterprise turned out to be almost twice as high as that of the second. This means that even with less real profit, Enterprise 1 operates almost twice as efficiently as Enterprise 2.

In this way, you can easily carry out a comparative analysis of the activities of even the most seemingly incommensurable enterprises. For example, you can compare the production efficiency indicators of a large plant with a staff of 10,000 people and branches in a dozen large cities with a small workshop that produces a single type of product, the entire staff of which is 5 people. And it’s not always possible for a large plant to be ahead in such an unspoken competition.

As you can see, the value of the coefficient is calculated quite easily, and its importance for assessing the economic efficiency of any aspect of an enterprise’s activities is difficult to overestimate. All this makes the profitability of an enterprise or production the most important parameter, which should not be neglected under any circumstances.

For greater clarity, we suggest watching videos devoted to calculating the production profitability ratio, methods of analyzing it, and valuable tips for increasing its values.

For every entrepreneur, there are several basic indicators of business performance. Profit is just one of them.

It is critically important for people who start their own business to know how to calculate profitability. Otherwise, a seemingly successful enterprise may be unprofitable.

Online enterprise profitability calculator

What is profitability in simple words

Profitability is a reflection of the profitability of a businessman’s actions. Essentially, the concept implies the difference between expenses and income.

The expense part is associated with the costs of all types of resources, including labor, as well as depreciation - wear and tear of equipment during its operation. Income item is all the money received by an entrepreneur for the sale of goods and services.

Types of profitability

The types of profitability are determined by the direction of the enterprise's activities.

In economics, it is customary to distinguish the following types:

• goods and services - the difference in resource costs and sales income, sometimes calculated for a specific product;
• enterprises – accounting of all cash flows of an enterprise, used to assess the value of a business;
• assets – completeness and correct use of business units.

Calculating profitability in order to clarify the balance sheet is important not only for a business owner who wants to evaluate his asset, but will also be required when selling a business and wanting to attract third-party sources of financing.

Profitability indicators

In order to get the most complete picture of business profitability, it is recommended to analyze several indicators. This way you can take into account more factors and see the situation from different angles.

Key indicators include:

• assets;
• products;
• sale of goods and services;
• employees;
• capital, including investments.

Depending on the specifics of the business, other profitability indicators are also used, but even analyzing the above is enough to determine the current situation and the level of the trend.

How to calculate profitability

Profitability is determined using special formulas. The data used is taken from the books of account.

The key parameters required for substitution are:

• profit - the difference between income and expenses, before taxes;
• the value of assets on the company's balance sheet.

The formula is based on the fact that the first indicator is divided by the second, and the resulting result is multiplied by one hundred percent.

Sales return formula

Return on sales is the size of the markup that is added to the cost of a product when it is sold to an intermediary or the end consumer.

The formula is based on the ratio of profit to revenue multiplied by one hundred percent.

This parameter shows what part of the profit is in the total revenue from the product. This is important, because if it is low, it means the owner’s income is low.

Sales profitability is easy to calculate for small businesses or specific departments. When analyzing the efficiency of large companies, the indicator is rarely analyzed.

Product profitability formula

It is important to determine the profitability of products, since the main task of a business is to make a profit from the goods and services sold. The formula is based on the ratio of net profit and cost.

The calculation cycle is as follows:

1. A certain amount of finished goods is taken.
2. A time period for its implementation is determined, which is especially important for perishable items.
3. The cost of production is determined, that is, how much money was spent on creation.
4. After sales, the net profit indicator is calculated - income minus costs.

The last two parameters are inserted into the formula, and the indicator is measured.

Production profitability - formula and calculation example

Profitability of production allows not only to assess the current state of affairs at the enterprise, but also to determine the prospects for the growth and development of the company.

The calculation formula is identical for all types of business, regardless of the area of ​​activity.

To calculate the indicator, you need to divide the production volume of profit by costs. Next, the indicator is multiplied by one hundred percent.

Let's look at an example that characterizes the calculation:

• revenue from product sales amounted to 100,000 rubles;
• labor costs, raw materials, trade costs - 60,000 rubles;
• the profit is correspondingly equal to 40,000 thousand.

When substituting the data into the formula, the yield will be 66%.

Formula for calculating the profitability threshold

The profitability threshold is an indicator at which the enterprise will not be unprofitable, but will not make a profit.

This parameter is important for entrepreneurs in order to determine the minimum sales level that must be exceeded in order not to go into the red.

The calculation is made using two formulas:

1. Definition of margin. Subtract the company's variable costs from revenue, then multiply the difference by one hundred percent;
2. Profitability rate. The ratio of fixed costs to margin.

Thus, the key concepts influencing this indicator are:

• markup on the product when selling it;
• expenses for fixed and variable costs.

Return on current assets

Assets are the most important element of any business. It is on the competent and full use of existing units of employees, equipment and premises that the entrepreneur’s income will depend.

Calculating the return on current assets is one of the most common methods for assessing the value of an enterprise. Simply put, this analysis gives an understanding of how much money a particular person or certain equipment brings in or takes away.

If the parameter is below the zero norm for all assets, the company is unprofitable, since the available resources do not bring real profit.

ROI Calculation Formula

Calculating the return on investment is important when analyzing the effective use of funds raised for a project.

The simplest calculation formula is: the ratio of profit to investment multiplied by one hundred percent.

To obtain such a parameter as profit, the cost is deducted from the total income for the billing period.

Negative profitability

If after the calculations the parameter turns out to be negative, then this is a direct indicator of the unprofitability of the enterprise. This indicates, first of all, that the businessman’s income is lower than the basic expenses. The economic position of such a person is precarious.

Gross Margin

Gross profitability reflects how much profit each ruble received from the sale of goods and services brings.

Most often, accountants are involved in calculating gross profitability. They have a special counting scheme.

Operating profitability

Operating profitability includes calculated returns on administrative and other expenses, sales and assets. That is, it is a reflection of aggregate data and provides the most accurate reflection of the state of affairs in the company.

Ways to increase enterprise profitability

If the analysis provided disappointing results, then the entrepreneur needs to take measures to increase profitability.

Before starting to take action, it is recommended to track the dynamics over several periods of time, as factors such as:

• seasonality;
• emergence of competitors;
• rising prices for raw materials and labor in the region.

The main ways to increase profitability include:

1. Improving the quality of the manufactured product in order to increase the sales market.
2. Development of a marketing company, including advertising, search for new sales channels.
3. Reducing costs without compromising quality, for example, upgrading equipment or attracting highly qualified personnel to replace several people without a specialty, or reducing salaries.

An entrepreneur can make an assessment on his own using an online calculator if he knows the formula and initial data. It is also permissible to involve third-party specialists.

Production profitability ratios are indicators for assessing production efficiency. Read what coefficients are used to assess the profitability of production activities, what formulas to use for calculations, how to analyze them, and also see an example of the calculation.

What is this article about?:

Production profitability formula

How to calculate using balance sheet data

What other coefficients are used to analyze production profitability

To assess the profitability of production in a broad sense, it is necessary to calculate and compare a whole set of indicators - profitability of production costs, production assets, assets.

Why calculate return on cost?

If we divide the amount of resources spent on producing a batch of products, we get unit cost . Using this value, you can calculate the cost profitability using the formula:

Return on cost = Gross profit / Cost of goods sold

The numerator uses the line figure 2100, and the denominator - 2120, of the income statement.

This ratio is often called production profitability, although its most correct name is profitability of products sold.

The advantage of this indicator is its simplicity and ease of calculation. It provides important information about the share of direct manufacturing costs in revenue, which is the cornerstone of marginal analysis. Tracking the dynamics of this indicator makes it possible to manage the profit of the enterprise by controlling direct costs.

However, it is not enough for a qualitative assessment of production efficiency, since it does not give any idea of ​​the value of assets and resources involved in the production process. Why this is important will be seen in the example below.

How to find the profitability of production assets

To assess the amount of assets and resources involved in the production process, it is worth calculating the profitability of production assets, which is also often called the profitability of production, it is calculated using the formula:

Return on production assets = Gross profit / Average cost of production assets

In this case, if the numerator data is easy to obtain from financial results report , then we will find the denominator in finished form in the financial statements. Production assets include part of the non-current and current assets directly involved in production: machines and equipment, inventories, balances in work in progress, finished products. This indicator characterizes the efficiency of production activities much more fully and, of course, can provide a lot of useful information to enterprise management.

Using the return on assets ratio to assess production profitability

The most general indicator, which in a certain sense combines both of the previous ones, can be called the return on assets ratio, which is calculated as follows:

Return on assets = Net profit / Average asset value

For calculations, lines 2400 of the income statement and 1600 of the balance sheet are used.

Using it to assess production profitability is possible with a number of reservations:

• production is the only activity of the enterprise;
• the share of non-operating income and expenses is small compared to production costs;
• the activity is quite stable and does not experience large jumps associated, for example, with large investments or other diversion of financial resources;
• The company makes little use of borrowed sources of financing.

As you can see, there are many conditions, so assessing the profitability of production using this indicator is a stretch. If an enterprise actively uses loans and conducts several types of activities, then income and expenses from financial activities in other areas will significantly distort the picture. But it all depends on the end user’s request: if the above conditions are met, and you need to quickly assess the profitability of production as a whole, without going into details, then this indicator is very suitable.

What else can you get from the coefficients?

Any calculated indicator is of practical interest not in itself, but only in comparison with its values ​​in previous or forecast periods, as well as in comparison with other indicators.

In addition to tracking dynamics, a good option is to use these coefficients as a factor model. Using tools factor analysis , for example, using the method of sequential substitutions, it is possible to determine the contribution of each factor: sales price, direct costs, cost of production assets - to the overall change in profitability. This method is universal and makes it possible to carry out analysis to any depth. For example, if you subject indicators to factor analysis separately for each type of product, then the possibilities of planning and controlling production activities will increase significantly.

You can use different calculation options, take different types of profit into the numerator (gross, before tax, net), and the denominator can take into account production costs, both with and without general production and commercial expenses. The final calculation method is determined based on the specific analytical task and individual characteristics of the enterprise.

Example of calculation and analysis of production profitability

Let's consider the financial statements of two enterprises and calculate all three ratios for them. Their simplified balance sheets with annual averages look like this:

Table 1. Balance sheets of enterprises “A” and “B”

table 2. Reports on financial results of enterprises “A” and “B”

For enterprise “A” the return on cost will be: 1,352 / 1,893 = 71.4%.

Return on production assets: 1,352 / (6,705 + 2,160) = 15.3%

We will make calculations for enterprise “B” in a similar way and combine the results obtained in Table 3.

Table 3. Profitability of production of enterprises “A” and “B”

You can see that the indicators behave differently: enterprise “B” has a much lower profitability of products sold, while the profitability of production assets is much higher than that of enterprise “A”. Which is ultimately better? The answer to this question can be given by return on assets, which is slightly higher for enterprise “A”.

conclusions

The specific method for assessing production profitability depends on the individual characteristics of the enterprise and the problem that needs to be solved. In a narrow sense, this is work with profitability ratios of cost and production assets using the tools of marginal and factor analysis. It has great practical value for operational management and is in great demand at the middle management level.

Assessing the profitability of production in a broad sense is the definition and comparison of a set of indicators: profitability of costs, production assets, and assets. This approach will make it possible to reliably and completely determine the efficiency of the enterprise as a whole and will be more suitable for answering the requests of strategic management or investors.

Profitability- a relative indicator of economic efficiency. The profitability of an enterprise comprehensively reflects the degree of efficiency in the use of material, labor, monetary and other resources. The profitability ratio is calculated as the ratio of profit to the assets or flows that form it.

In a general sense, product profitability implies that the production and sale of a given product brings profit to the enterprise. Unprofitable production is production that does not make a profit. Negative profitability is an unprofitable activity. The level of profitability is determined using relative indicators - coefficients. Profitability indicators can be divided into two groups (two types): and return on assets.

Return on sales

Return on sales is a profitability ratio that shows the share of profit in each ruble earned. It is usually calculated as the ratio of net profit (profit after tax) for a certain period to the sales volume expressed in cash for the same period. Profitability formula:

Return on Sales = Net Profit / Revenue

Return on sales is an indicator of a company's pricing policy and its ability to control costs. Differences in competitive strategies and product lines cause significant variation in return on sales values ​​across companies. Often used to evaluate the operating efficiency of companies.

In addition to the above calculation (return on sales by gross profit; English: Gross Margin, Sales margin, Operating Margin), there are other variations in calculating the return on sales indicator, but to calculate all of them, only data on the profits (losses) of the organization are used (i.e. e. data from Form No. 2 “Profit and Loss Statement”, without affecting the Balance Sheet data). For example:

• return on sales (the amount of profit from sales before interest and taxes in each ruble of revenue).
• return on sales based on net profit (net profit per ruble of sales revenue (English: Profit Margin, Net Profit Margin).
• profit from sales per ruble invested in the production and sale of products (works, services).

Return on assets

Unlike indicators of return on sales, return on assets is calculated as the ratio of profit to the average value of the enterprise's assets. Those. the indicator from Form No. 2 “Income Statement” is divided by the average value of the indicator from Form No. 1 “Balance Sheet”. Return on assets, like return on equity, can be considered as one of the indicators of return on investment.

Return on assets (ROA) is a relative indicator of operational efficiency, the quotient of dividing the net profit received for the period by the total assets of the organization for the period. One of the financial ratios is included in the group of profitability ratios. Shows the ability of a company's assets to generate profit.

Return on assets is an indicator of the profitability and efficiency of a company's operations, cleared of the influence of the volume of borrowed funds. It is used to compare enterprises in the same industry and is calculated using the formula:

Where:
Ra—return on assets;
P—profit for the period;
A is the average value of assets for the period.

In addition, the following indicators of the efficiency of using certain types of assets (capital) have become widespread:

Return on equity (ROE) is a relative indicator of operational efficiency, the quotient of dividing the net profit received for the period by the organization’s equity capital. Shows the return on shareholder investment in a given enterprise.

The required level of profitability is achieved through organizational, technical and economic measures. Increasing profitability means getting greater financial results with lower costs. The profitability threshold is the point separating profitable production from unprofitable ones, the point at which the enterprise’s income covers its variable and semi-fixed costs.

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