How to calculate the economic efficiency of the proposed activities?

The economic effectiveness of the proposed activities demonstrates the value of investing money.

Calculation criteria

They can be divided into two groups:

1. Socio-economic.
2. Economic.

The criteria for each category are different. The main one in calculating the indicators of economic efficiency is considered to be how much the company can maximize its profits, and how efficiently capital investments are used. When determining the effectiveness of socio-economic nature, the main parameter of the assessment is the level of satisfaction of the needs of the population.

In order to have high socio-economic efficiency, the economic system must satisfy a number of human needs. These include material, spiritual, social needs, guarantees of high quality and standard of living.

Methodology for calculating economic efficiency

Efficiency reflects how much profit 1 unit of investment makes. The higher its value, the better the company will manage the invested funds. The calculation of the economic efficiency of the proposed activities is conducted with a view to determining how effectively the financing was carried out.

Classical calculation is the ratio of the result (profit) to the costs incurred to obtain it. The formula for calculating the economic efficiency of the proposed activities can be presented as follows:

EE = Eph / 3 , where

• EE - economic efficiency;
• З - expenses for achievement of an economic effect (capital investments);
• Ef - economic effect.

There is also a formula of absolute economic efficiency for production and non-productive spheres of activity. It can be represented as follows:

EE = (Ef ₁ - Ef ₀ ) / (W + K * _KH ) , where

• EE - economic efficiency;
• Ef ₁ is the overall result after the activities;
• Ef ₀ - the result before the events;
• And - total costs;
• K - investment for events;
• К _н - the normative coefficient.

The normative coefficient is an indicator that characterizes the minimum permissible efficiency of activity in a particular sphere. It differs depending on the sphere.

Efficiency of investments

In order to evaluate the effectiveness of capital investment, two formulas are used:

1. Coefficient of economic efficiency.
2. Payback period of deposits.

The calculation of economic efficiency from the proposed measures differs in the spheres of production and trade. For production, the calculation formula is:

EE _n = (C - CC) / K , where

• ЕЕ _п - economic efficiency of production;
• C - the cost of products released during the year, at wholesale prices;
• К - capital investments;
• SS - the cost of products produced for the year.

Speaking about the sphere of trade, it should be noted that the formula for calculating the economic efficiency of the proposed measures has a slightly different form:

EE _n = (H - H) / K , where

• ЕЕ _п - economic efficiency in the sphere of trade;
• Н - the sum of discounts;
• And - the total costs of circulation;
• K - invested capital.

Payback term

The second indicator, used in assessing the effectiveness of activities - this is the time for which the invested funds pay off. General formula of the payback period :

T = K / E , where

• T - payback period of activities;
• K - invested capital;
• Ef - the economic effect of the activities (profit).

For the calculation of the term payback of measures in the sphere of trade the formula is used:

T = K / (C-CC) , where

• T - the term of recoupment;
• C - the cost of products released during the year, at wholesale prices;
• К - capital investments;
• SS - the cost of products produced for the year.

In the commercial sphere, the payback period is defined as follows:

T = K / (H-H) , where

• T - the term of recoupment;
• Н - the sum of discounts;
• And - the total costs of circulation;
• K - invested capital.