Every person who claims successful entrepreneurial activity should know what profitability is. And not only an entrepreneur. Anyone is useful to know this. This article will reveal the topic of profitability.
The essence of profitability
Profitability is an indicator of economic efficiency. The company's efficiency, a larger enterprise or economy as a whole. You can often hear the phrase on the similarity as follows: "This solution is unprofitable", which can be interpreted as follows: This decision is not effective, not optimal, does not bring any benefit.
The purpose of any managerial solution is to achieve profitability. If you have a few alternatives to solve any entrepreneurial task, you must choose the most efficient option in the financial plan. Be this profitability obtained by a decrease in costs or profitability obtained by increasing profits.
There are several profitability indicators. Below will be considered each of them.
Profitability of equity
Profitability of equity shows how effectively own funds are used. To measure this indicator, it is necessary to divide the net profit of the enterprise to its own capital.
Gross profitability
Words gross means general profitability. Those. profitability is not for some two elements of the accounting report, but according to the general revenue of the enterprise. In order to calculate the gross profitability, the gross profit (total profit) is divided into revenue.
What is the difference between profit and revenue? Revenue is the total cash flows that the enterprise received during the reporting period. By the way, the reporting period is 1 month. For this 1 month, the company sold its products in the amount of 1 million rubles. This means that the company's revenue - 1 million rubles. Having received this amount, the company is obliged to pay all its workers, pay utility services, deduct part of the amount to depreciation, etc. After all this, the company has 500,000 rubles. This is the profit of the owners of the company.
Profitability Sales
Profitability of sales shows how effective the sales of the enterprise for the reporting period were. To find this coefficient you need to know the value of the operating profit (profits from the main activity of the enterprise) divided into revenue (general cash receipts of the company without deducting costs).
Profitability of assets
Calculating the profitability of assets, you can find out how much the assets available within the enterprise can generate profits. The coefficient is calculated by dividing net profit on the assets of the enterprise. Based on the fact that the company's available assets can use in order to obtain passive income, interest accruals may be added to profit (in specific situations).
Remember that if you have your own business - it is necessary to calculate the profitability coefficient. He will give you the basis for analyzing and taking the right decisions.
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