Analysis of composition and dynamics of profit

As a result of the whole activity of the enterprise, profit requires the most close attention. There are many reasons for this: from the correct and full payment of taxes until the adoption of the most correct managerial decisions. Obviously, it is not enough just to collect information on the profit received for several periods, as it must be analyzed. Perhaps, the most important thing is to analyze the composition and dynamics of profit, which we will dwell on in more detail.

The profit of the enterprise consists of the profit from the sale of products, that is, from the main activity, and also from the difference of other incomes and expenses. Of course, you can separately study the composition of profits in terms of basic and other activities, but it is much more convenient to conduct analysis based on the income statement. Information, which is presented in it, is enough to analyze the composition and dynamics of profit. For this purpose, this report must first be studied in two directions: vertical and horizontal. Vertical analysis is a study of the structure, since in its process the specific weight of the individual indicators is determined. Traditionally, the proceeds are selected as the base. The structure is determined over several periods, and then the changes occurring in it are studied.

The next kind of analysis is horizontal. From its name it is quite obvious that the indicators are compared for several periods. To do this, determine the relative and absolute changes. As a relative indicator, the dynamic coefficients are usually used. With the help of this type of analysis, the main trends inherent in the dynamics of various indicators are determined: both the profit and the factors affecting it. As for the factors, the analysis of the composition and dynamics of profit by vertical and horizontal methods is usually supplemented by the conduct of factor analysis.

Factor analysis of the dynamics of profit consists in identifying the indicators that have the greatest impact on it, and a concrete quantitative assessment of this influence is made. To conduct a factor analysis, it is necessary to compile a mathematical model, which will be able to describe the profit. Models can be quite diverse. Profit can be represented as a product of sales volume for the difference in price and unit cost. The simplicity of this model is explained by the fact that it takes into account a small number of factors that affect profit. A more detailed model can be constructed on the basis of the report mentioned above, which reflects the order of net profit formation. When using this model, it should be taken into account that this value depends on the revenue, which in turn depends on the price and volume of sales. These factors should also be taken into account separately. An analysis of the influence of factors in this model can be carried out by any method suitable for analyzing deterministic models, for example, by the method of chain substitutions.

Analysis of the composition and dynamics of profit will be incomplete if it is not followed by certain conclusions. The importance of conclusions can not be overestimated, because management decisions are made on their basis. The analysis can reveal a number of serious problems that need to be addressed. Perhaps, it is necessary to pursue a policy of more stringent cost management in order to reduce the cost of production, which has a negative impact on profits. In addition, shortcomings in pricing policies can be identified that do not contribute to maximizing revenue. Perhaps you need to look for ways to reduce the tax burden: special tax treatment, benefits and the like. In other words, it is necessary to pay attention to those factors that negatively affect profit, and then take decisions that contribute to weakening this influence. The factors that influence positively must be used most fully.