Profit and profitability of production

Everyone at least once heard such words as profitability and profit. However, if there is a lot of representation about such profit , then the word profitability is much more complicated. Profitability of production is the most effective indicator, which can determine the economic picture of the enterprise. With the help of this indicator, you can not just orient yourself in determining the state of the enterprise, but also analyze its economic feasibility.

This indicator is able to determine both the efficiency of the entire enterprise as a whole, and the efficiency of its individual production lines. For example, for a large agricultural enterprise, not only the overall profitability index is calculated, but also the profitability of milk, meat, crop production and any other areas of its activity.

The indicator of profitability is convenient for characterizing financial results and analyzing the efficiency of any commercial enterprise. The term profitability comes from the word Rent, which in translation means income. Total profitability of production is an indicator of profitability, profitableness and financial efficiency of the enterprise.

It is very convenient, because it allows to show a visual assessment when comparing individual industries, enterprises and industries, characterized by different directions and different volumes of products. The very indicator of profitability of production characterizes the ratio of the received profit of the enterprise to the amount of resources spent on the production of the entire volume of output.

In economic analysis, the most common indicators are the profitability of products, as well as the profitability of production. The basis for calculating profitability is profit, which is not simply an important economic indicator, but is the ultimate goal of any commercial enterprise. Profit is the same indicator that characterizes the success and effectiveness of the activity of any enterprise.

Profit arises when the company's expenses do not exceed its income. If, as a result of economic activity, it turns out that the company's expenses exceed revenues, its effectiveness is considered negative, in other words, the enterprise receives a loss. When the profit grows as a result of economic activity , the economic possibilities of the enterprise grow proportionately and its business activity increases .

Also, the profit received as a result of the activities of the enterprise determines the share of income of its owners, founders, shareholders. Profit is used not only to calculate the profitability of production, but also to calculate the profitability of its own core and current assets, borrowed resources, as well as all advanced capital. With its help, you can determine the profitability of each share of the joint-stock company.

Therefore, profit is not simply the goal and result of the activity of any successful organization, but also the most important economic category. Profit and profitability of production are not only estimates, but also fulfill the most important functions:

-accounting, since it is profit and profitability that are the final indicators that allow determining the effectiveness of all production and economic activities;

-stimulating, as they provide more opportunities for economic development and expansion of production;

-budget-forming, as profit is not only a source of development of production and enterprise, but also is a real source for replenishment of the country's budget.