What is profitability?

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Often in articles or in news we meetthe word "profitability." Its importance, despite the frequency of use, for many remains undisclosed. What is profitability? The very word comes from the German "rentabel", which means "profitable". And profitability in itself is an indicator of economic efficiency, it reflects how effectively the financial, labor and other resources of the enterprise are used.

What is the profitability of the enterprise?

It should be determined by the main indicators, which include profitability of sales, production and many others.

Profitability of sales

It reflects the profit in each ruble receivedenterprise. To calculate this profitability, the amount of net profit (after tax) for a certain time is divided by the volume of sales (revenue) for the same period. This profitability affects the pricing policy of the company, and on its coefficient depends, will rise or, conversely, lower the cost of the company's products.

Profitability of production

To obtain this indicator, the profit fromthe implementation is divided by the amount spent on the production and sale of its product. The coefficient will show what profit the company has from each ruble, which went to pay production and sale of goods. Profitability of production is usually considered for the company as a whole, but if you have several branches of the same enterprise, it will be expedient to calculate profitability for each of them.

Return On Assets

The third key indicator for identifyingprofitability of the enterprise is the profitability of assets. Most often, the calculation of this parameter is used to compare enterprises of similar industries. To find out the profitability of your assets, you need to divide the net profit for any selected period by the average value of assets for the same period of time.

Other types of profitability

Profitability of production assets

It is calculated in the same way as in the situation with assets. With it, you can determine how effective the fixed assets of production are.

Profitability of capital

Calculated in percent by dividing the profiton the capital. It shows how effectively the company's own funds are used. If you calculate the difference between the profitability of assets and liabilities, then you can get the amount of borrowed funds.

Return On Investment

It is necessary to estimate the profit from the initial deposits. It is the ratio between the profit and the amount of the initial contribution.

Profitability of production

It shows how cost effective it was. It is the ratio between the profit from the sale of production to its cost price. It is used to calculate both individual products and all goods. Calculate this profitability by the ratio of profit from sales to the cost of production, which is realized.

Coefficient of profitability of sales

Calculated through the ratio of profit from sale to the proceeds of the enterprise. Otherwise, the ratio of net profit and sales.

Profitability of personnel

This ratio of the company's net profit andaverage number of staff. Since these are interdependent quantities, in order to obtain the greatest profit, it is necessary to observe a special threshold of the number of personnel.

Profitability of contract services

It is obtained by dividing the difference between the costs when the work was provided by the contractor and the costs when the services were performed by the customer.