Profitability of own capital shows what needs to be paid attention while doing business

In modern companies, when analyzing performance, they usually use profitability indicators. There are four types of coefficients of profitability. The main ones will be considered in this article.

Profitability of own capital shows the success of this company with the ability of its share capital or its inability to create a sufficient level of profit. Also, this profitability is called a joint-stock company, which clearly reflects its properties at work.

Profitability of own capital shows that it can depend not only on profits in business, but also on the ratio of borrowed capital and own. This relationship is commonly called the effect of the lever. Its essence is very simple: the company uses borrowed funds to increase or decrease the return on equity.

The increase or decrease in the profitability of equity capital, of course, directly depends on the indicator of the average cost of borrowed capital.

In order to determine the level of profitability of the company for any period of time, you only need to compare the profitability of the company's own capital produced over several years and other investment instruments, such as government bonds.

Profitability of own capital shows - it's roughly speaking, the remainder of dividing the company's net profit, on its own, of course, own capital. Of course, this idea can not be called comprehensive.

Return on equity is indicative of a company's net profit / average capital.

Return on equity is characterized by the following phenomena: any firm or company has its own capital in the form of shares, finance or any other securities. This capital, of course, is constantly changing: it can increase, or may decrease.

In order to assess the effectiveness of this company, you need any tools. The company also has any profit derived from its transactions or production. Net profit in any corporation is the profit that is obtained taking into account all existing costs, penalties and everything else in the company. That is, this is the profit that is obtained as a result. So, in order to understand how well the company works, it is enough to divide this net profit of money, into the capital available in this company. This will be the profitability of this campaign in the market economy.

In order to build a successful system that will monitor the financial condition of the enterprise, the following factors should be used:

1. The overall coefficient, which is responsible for the company's ability to cover its short-term obligations, this will be called the return on equity. The standard is from 1 to 2.
2. The next factor is the urgency of liquidity.
3. The degree of solvency and the organization's dependence on material costs, shows the liquidity ratio.
4. In order to determine what amount of funds the company raised per 1 ruble, it is necessary to pay attention to the ratio of borrowed and own resources. In successful companies, the ratio should not exceed 0.7.
5. Any enterprise must have its own funds, and their availability shows the security ratio.
6. Another important factor is the turnover of working capital. After all, sometimes companies resort to using borrowed funds and can not cover all expenses from their own capital, as a result of which it can be said that turnover reproduces insufficient amount of resources in the form of cash, which does not contribute to the development and expansion of the company.