The formula for profitability of the main activity of the enterprise

Any enterprise in the process of economic activity seeks to profit from its activities. The ideal formula for any business will be to get as much revenue as possible and spend a minimum of resources on it.

What is used for evaluation?

To evaluate the activities of the company use a variety of economic and financial indicators: the cost of products, the coefficient of profitability of production, margin sales, cash turnover, capital flow, and many others. For each such indicator has its own calculation method, for example, to determine profitability, the formula for profitability of the main activity of the enterprise is used.

Profitability of production and enterprise

The term "profitability" has German roots and means "profitability." With the help of the assessment of profitability, it is possible to draw conclusions about the effectiveness of the use of cash in the enterprise. But how to calculate the profitability of production?

This indicator determines the profit that the producer received per unit of his expenses. That is, for example, if the profitability is 20%, then the enterprise received 20 rubles of profit for each ruble, which was expended on the production of goods or the provision of services. The lower the profitability, the less the enterprise earns from one conventional unit of output. These theses confirm the formula of profitability of the main activity of the enterprise.

Profitability indicators are also called profitability indicators. In fact, you can determine the effectiveness and quality of management in the enterprise, calculating the profitability of the main activity of the enterprise. The formula for calculation is given in the article. If the resources of the enterprise are not used rationally , then the profitability will decrease. And with effective and economical use of raw materials and other values, it will grow.

The formula for the profitability of production will help you to know the level of profitability by which you can judge whether it is profitable to engage in such activities or whether you need to redirect production to another channel. In other words, with the help of mathematics, one can justify the expediency or disadvantage of conducting a particular type of activity.

Calculation of profitability

The formula for profitability of the main activity of the enterprise, which will show the result in the form of interest, is as follows:

Р _осн. = ((Profit from operating activities) / (Cost of production + Total production costs + Administrative costs)) * 100%,

Where:

• Profit from the main activity = (Revenues of the enterprise by main type of activity) - (Cost of production + General production expenses + Administrative expenses).
• The cost price of production is the direct costs of conducting activities (wages and salaries for workers who directly participate in the production process, the costs of purchasing and delivering raw materials, materials that are expended in production, etc.).
• General production costs - include costs for electricity, utilities, paper, cleaning services, staff salaries, which are not directly related to the production process, but are engaged in servicing business processes (secretaries, technicians, cleaners, security guards, etc.), and Other costs that can not be attributed to direct.
• Administrative costs - the costs of maintaining administrative and managerial staff, holding meetings and meetings, encouraging employees for high achievements, holding sports events and other events, traveling to various conferences for directors, as well as other costs incurred by the enterprise to organize the production process.

In order to see the coefficient, The formula for profitability of the main activity of the enterprise is calculated without multiplying by 100%.

In principle, this calculation is suitable for other types of profitability, only with some changes. For example, the formula for profitability of production is as follows:

Р _пр. = ((Profit from the sale of goods) / (Cost of production of goods + General production expenses for the production of goods + Administrative costs for the production of goods)) * 100%.

What level of profitability is considered normal?

The first step is to consider the basic values of the profitability index. The profitability of the core business, the formula for calculating which is given above, can take on very different meanings. If the coefficient is below zero, it shows that the company spends money on the production of goods or services more than it earns on their sale.

A coefficient of 0 indicates a breakeven point. This means that the enterprise does not receive profit, but also does not incur financial losses from its activities.

If the profitability is higher than 0, then the enterprise works for itself in profit.

It should be taken into account that in different spheres of business there is an acceptable profitability of the main activity, the formula for calculating which speaks about this. There are industries in which it is necessary to cover and the risks faced by the manufacturer in various areas of their activities.

Russia is no exception. At enterprises that are engaged in different activities, profitability indicators can be radically different. However, not always an enterprise with a lower profitability will be less successful. There are a number of reasons for this, related to the turnover of capital and other features of the functioning of enterprises in various sectors of the economy.

Normal profitability in the field of building materials and other production

So, in the sectors of production of building materials, as well as in those that have a high transportation potential to other countries, the average profitability indicators are at the following level:

• Operation of oil and gas pipelines (80-90%);
• Production of cement products (80-85%);
• Production of fertilizers (80-85%);
• Production and processing of non-ferrous metals (60-65%);
• Production of rolled products (35-40%).

Normal profitability in the banking sector

In the sphere of banking services and for financial institutions, the following indicators are observed in the Russian Federation:

• Clearing services (65-70%);
• Maintenance of trade in financial markets (55-60%);
• Maintenance of registers on the securities market (40-45%).

The normal profitability of goods consumed by man

The production of goods that are consumed by the population has such indicators of profitability:

• Manufacturing of tobacco products (40-42%);
• Brewing (25-30%);
• Production of household appliances (20-25%).

The pitfalls of the profitability index

Despite the fact that the formula for profitability of the main activity of the enterprise is quite simple and understandable, it is impossible to look at the final figure in a straightforward manner.

There are many methods of profitability analysis, which characterizes a wide range of different types of its indicators.

First of all, it is important to evaluate and compare the sales volumes of different periods, and also to track the level of profitability of those periods. It often happens when a good and promising business becomes unprofitable precisely because of the wrong approach to assessing the necessary volumes of production and sales of goods and services.

For example, the manufacturer of any product wanted to increase the profit of the enterprise not by reducing the level of production costs, but by increasing the volume of output.

The formula for the profitability of production at the same time at the output will show that profitability can significantly fall or even be negative. What is the reason for this? There are many factors. There is always the possibility of losing markets or their volume failure. Relations with sellers may deteriorate, or simply the output of output is not needed by the market, since demand is limited. In simple words, if there is no one to sell the goods, then why should not it be produced. In the case of excess production, the goods will simply lie in warehouses and deteriorate.

Also, the speed of capital turnover should be considered. For the first example, you need to analyze the time between the initial purchase of raw materials and the point at which the money was received for the products produced. This will be a complete production cycle. The profitability of the production of 1 commodity can be, for example, 50%. If there is a period of turnover of products large, and also the volume of production is limited, then the actual profit may be too low to pay all current expenses. That is, a mark of profitability of 50% may not at all indicate the success of the enterprise, but will simply characterize the specifics of the industry and the methods of production.

How to use the profitability indicator of production?

Undoubtedly, profitability of production is one of the most important indicators by which it is possible to conduct an analysis of the efficiency of the enterprise and draw any conclusions about the process itself.

Analyzing the activity of any enterprise it will not be enough just to know how to calculate the profitability of the main activity, it is necessary to remember about other indicators, as well as about various methods of economic research. You can not extract profitability from the whole system of indicators, in which it is included. This is financial stability, and liquidity, and solvency, etc. In addition, it is necessary to conduct a vertical and horizontal analysis of the balance of the enterprise, use financial indicators, such as capital turnover, asset movement.

Only in this case it is possible to fully assess the profitability index, to determine the prerequisites of such a level and ways to effectively increase it.