Idea, business, enterprise and return on working capital

Calculation of the profitability of the enterprise is done either on the basis of preliminary indicators (estimated), or at a working enterprise, where the income is already received and the results of the settlement period are summed up.

Profitability indicators

Return on working capital is the determination of the profitability or loss of the enterprise. This indicator is relative, determining, what is the level of profitability of the business. The higher the profitability ratio after the calculations made, the greater the profitability of the business. Profitability can be determined, as a whole for the whole volume of production, services, and for a portion of the invested money, for example, profitability of production, commercial or investment. Value of profitability - this indicator determines how effective the business is in relation to the ratio of cash and consumed resources.

The indicator of profitability, as a general evaluation of the effectiveness of the invested funds, is calculated by the formula:

R CI = P / R CI

Where R CI - the indicator of profitability of certain funds and sources. P - profit (net or profit on balance).

Profitability is common for the whole production.

R Society. = PPn / Vreal.

Where Pdn - gross profit, B - revenue from sales of products (or sales).

Profitability can be calculated, both for all indicators of the invested funds, and for its individual components.

1. Indicators by which the payback of production costs and projects in which investments are made is visible.

2. Profitability of sales.

3. Profitability of part or all of capital.

1. R = Prp / 3pn

2. R = ЧПрп / Зрп

3. R = DDP / 3pn  

1. Profitability of the enterprise's capital . The profit from the sale of products is divided into costs.

2. Net profit and profit from core activities is divided into costs - to calculate the profitability of sales.

3. DDP - net cash flow (net profit amount and depreciation for the reporting period) is divided by the amount spent for the sale of products.

The return on working capital shows how quickly it can "turn around" in the market for the production of goods or the provision of services. That is, how many times you can return the money invested in business in order to re-put them into the business. How much of them you can spend without prejudice to fixed capital for the purchase of a new batch of goods or raw materials for production.

Return on working capital Reveals how the net profit (after tax) refers to the working capital of the enterprise.

R ОбА = ЧП / ОА ЧП is a net profit, ОА - the average annual price (cost) of working capital.

You can use the ratio of current assets turnover. In this case, the proceeds from sales are divided by the average amount of working capital for this reporting period.

Next, analyze the effectiveness of the business using the derived indicator: turnover phase (days) = number of days / current assets turnover ratio .

Return on working capital is sometimes difficult to calculate due to the complexity of the allocation and delineation of funds used in basic and other activities. Therefore, it will be more expedient to calculate the total value of current assets, determining the overall profitability.

P total. OA = (Resale + Other / OA) X 100%

Where OA in the denominator is the general component of current assets.

The expanded formula:

R total. OA = (N sales - (S np + KR + UR) + Other) / OA

Where

N sales - Revenues from sales.

S pr - Production cost.

KR - Commercial expenses.

UR - Managerial expenses.

OA - The total value of current assets.

Analysis of all indicators during the work of the enterprise for six months (or a year) will show how effective is the profitability of production capital and which of the indicators should be adjusted to improve its profitability and turnover.