The profitability of a business is a relative indicator of its economic efficiency, which is calculated according to a certain formula. The profitability ratio is defined as the ratio of profits and assets that form this profit. Information for calculations is taken from the balance sheet of the enterprise. Profitability is divided into net and total, i.e. the coefficients are calculated both for individual components of the production process and for the activities of the entire enterprise as a whole. Any enterprise that generates profit for a certain period can be considered profitable. But the concepts of profit and profitability must be separated. The same profit of two enterprises, expressed in absolute terms (as opposed to relative profitability indicators), may not be comparable for companies of different sizes. Profitability criteria determine the profitability of an enterprise, taking into account its size and capabilities.
For a correct assessment of the enterprise, it is customary to analyze several indicators of profitability.
Types of profitability
Overall return on assets. Its value reflects the percentage of profit for each ruble invested in the organization's assets. Return on assets is calculated by the ratio of operating profit (before tax) for a specific period to the average value of all assets of the company. Assets are taken into account not only own, but also attracted - accounts receivable, loans, etc.
Profitability of current assets - the ratio of net profit to the circulating part of assets (goods in stock, cash, etc.).
The profitability of products is determined by the ratio of profit from sales to the cost of production (goods or services).
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