Operating profit

Quite often when analyzing the performance of any enterprise, such an indicator as "operating profit" is used. In this article we will consider in more detail this indicator, as well as the procedure for its calculation. Operating profit is an important economic indicator equal to the amount of profit earned by the enterprise before taxes and possible interest on loans. The operating profit is calculated on the basis of the data that is reflected in the financial statements of the firm, and serves as an indicator of the investment attractiveness of any company, since it makes it possible to assess the profitability of the firm's core business, that is, the profit from manufacturing products (performing any work or rendering services). The formula for calculating this indicator can be presented in this form:

OP = PP + RNP - GNP + CR - BH + UP - PP, where

OP - the size of operating profit;

PE - the amount of net profit;

RNP - various costs associated with the payment of income tax;

GNP is a refundable income tax ;

Czech Republic - extraordinary expenses;

BH - extraordinary incomes;

UE - paid interest;

Mon - received interest.

The amount of profit or loss from operating activities is calculated in several stages.

At the first stage, the net operating profit from the sale of goods is calculated by adjusting the sales proceeds to the amount of indirect taxes and other deductions from profit.

In the second stage, the cost of goods sold is subtracted from the result obtained earlier. As a result, they receive a gross profit or loss from the sale of goods.

In the third stage, gross profit is adjusted (increased or decreased) by the amount of other operating income or losses that are received from the sale of other current assets (excluding financial investments), exchange differences, asset leases, penalties, fines, etc.

At the fourth stage, the operating profit (or loss) is calculated as the difference between the result obtained in the third stage and the amount of administrative costs and sales costs.

The formation of income from the main activity depends on the influence of various external and internal factors. External factors do not depend on the work of the firm, but, nevertheless, they have a significant effect on the amount of income, and therefore they must always be taken into account. These include:

• Current market conditions;
• The level of prices for raw materials and materials used by the enterprise;
• Depreciation rates ;
• Natural conditions;
• Regulation by the state of tariffs, prices, interest rates, penalties, taxes and fees, etc .;
• Political situation in the country, etc.

But the company can and should influence the internal factors if it wants to increase its income. The most important of them are:

• Level of management;
• Degree of competence of managers and management;
• Competitiveness of products;
• Organization of production, labor, etc .;
• Efficiency of drawing up and analysis of production and financial plans;
• Labor productivity.

Internal factors are industrial, which directly affect the manufacture of goods, and non-productive, related to supply, sale, social conditions of life and work, protection of the natural environment , etc.

Production factors, in turn, are divided into extensive (quantitative) and intensive (qualitative). It is necessary to use both of these types, but the emphasis is better on intensive factors, as they have much less restrictions and have a greater and longer effect in the long term.

The main ways to increase the operating profit are to increase production volumes, reduce the cost of goods, a reasonable assortment policy, improve the quality of products.