The concept of Profitability Enterprises

The main indicator, which characterizes the economic activity of the enterprise, is profit. The concept of profitability is associated with the relative expression of these indicators. Profitability shows the efficiency of the enterprise.

It is the indicators of profitability that provide information for conclusions about the level of the state of development of production and the efficiency of the business entity. Production management requires the comparison of economic performance (in the form of profit) with the costs that made possible the achievement of these results.

The concept of profitability is connected with the self-supporting activity of enterprises. This is one of the indicators that characterizes profitability or, conversely, loss-making of the enterprise in the course of production activity for any time interval (year, quarter).

The concept of profitability and its types can be defined as follows. It includes such large groups: profitability of production, capital and actual production.

The profitability of production is determined by the total and calculated. Total - means the ratio of profit on the balance sheet to the cost (average annual) of fixed assets and working capital. Estimated - represents the ratio of profit balance sheet minus fixed payments, fees for funds and bank loans to the cost (average annual) fixed assets and working capital.

The profitability of products is calculated as the ratio of the profit received from the sale of products, to the cost of production, as well as to the cost price, with the exception of direct material costs.

The profitability of capital is determined by the ratio of the result of current activity for a certain period of time (balance profit) to the basic and current assets (funds) available to the enterprise.

Every enterprise is interested in increasing profitability. The main factors of this are improving the quality of products, reducing the cost of production and loss of labor and material resources, more productive use of equipment, etc. To improve profitability, it is necessary to improve self-supporting relationships in the enterprise, to comply with the regime of reasonable savings. This is especially important when transferring to the conditions of self-financing.

To increase profitability, enterprises resort to such measures as increasing production and marketing of products, improving product quality, introducing scientific and technical developments, improving pricing and managing production processes, increasing the rationality of resource use through improving the system of settlement and payment relations and mutual settlements. The opportunities for implementing these areas should be constantly analyzed by the company's specialists.

The concept of profitability determines the qualitative indicator of the efficiency of production, it shows the level of return on the costs incurred and shows the degree of use of invested funds in production and in the course of the sale of products.

The profitability is calculated using the system of indicators: profitability of products, sales, production, own funds, long-term financial investments, investments, assets. These indicators are used in the analysis of economic activities to determine ways to improve the efficiency of the main lines of business. Separate indicators are used to determine the creditworthiness of borrowers.

The level of profitability of the enterprise is the ratio of gross profit to the amount of fixed and circulating funds that are at the disposal of the enterprise.