Factor analysis of enterprise profits

The financial result of conducting business activities should not only be subjected to strict accounting, but also detailed analysis. As you know, the financial result is profit or loss, and the most effective method of studying is a factor analysis of the enterprise's profit. Let us dwell in more detail on the main aspects of this technique.

Information on profits or losses of a commercial company is reflected in the same name of the financial statements. In addition to the simple definition of the profit margin for this report, one can trace the order of its formation, as well as the factors that somehow affect its magnitude. Based on the profit and loss account, a mathematical model is constructed, with the help of which a factor analysis of the enterprise's profit is carried out. If you include in this model all the data presented in the report, the net profit of the enterprise will be analyzed.

Particular attention must be paid to the fact that the report allows you to assess only the overall change in revenue. The problem is that this indicator, in turn, changes under the influence of two factors: prices and sales volumes. The influence of each of them should be taken into account and reflected separately. To do this, when calculating it will be necessary to use information that is not represented in the study report. This refers to information about the changes in prices for the enterprise's products (price index). After taking into account the change in revenue under the influence of prices, its change is determined under the influence of the dynamics of sales volumes. The subsequent multiplication by the profitability of sales of the base period makes it possible to estimate the change in profit already.

The impact on the amount of profit, cost, as well as commercial and management costs is determined by studying the change in their level. This level represents the ratio of certain expenses to the amount of revenue for the corresponding period. This level can be expressed as a percentage or as a coefficient. In the future, the amount of revenue for the reporting period must be multiplied by the difference in the calculated levels for each of the indicators. The result of the calculations will be the specific quantitative influence of this or that factor. If the level was represented as a percentage, then the result will need to be divided by 100.

Factor analysis of the enterprise's profit in terms of studying its changes under the influence of other income and expenses, as well as profit tax, can be made by determining the absolute change of these factors.

Analysis of the company's balance sheet profit can be done in a similar way. Obviously, because of the characteristics of this indicator, its factorial model will include a significantly smaller number of factors. In addition, this model can be represented in a different way, for example, as the product of production and sales by the difference in price and unit cost of production. This model can be analyzed by any suitable method. The most frequently resorted to using the method of chain substitutions, as well as its modifications.

Factor analysis of the enterprise's profit is not the only method that allows studying this most important indicator. Traditionally, vertical and horizontal analysis is performed with respect to the profit and loss statement . The first is to study the structure of this report. As a comparison base, it is usually customary to use revenue by studying the weights of all other indicators involved in generating profits. Horizontal analysis is an analysis in time, that is, the study of dynamics. The definition of absolute and relative changes in indicators allows us to identify trends and formulate the most useful management decisions.