What is negative profitability?

Profitability - a coefficient that reflects the effectiveness of the company. It can be both positive and negative. In the latter case, this indicator indicates an unprofitable activity.

Concept and types of profitability

Profitability reflects the company's ability to control costs and reflects the correctness and effectiveness of the selected pricing policy. The indicator is also often used to measure the operational performance of companies.

Profitability calculations are often carried out quarterly and annually, tracking its dynamics in relation to the previous period. Profitability analysis must be carried out for each group of manufactured (sold) goods.

In economic analysis, there are several types of profitability, the most commonly used:

- return on sales - reflects the effectiveness of the financial activities of the organization, shows how much of the company's revenue goes to profit;

Profitability of production = net profit from sales (services) / cost * 100%.

Return on sales = net profit / revenue * 100%.

- profitability of production - shows how efficiently the property of the enterprise is used.

They also distinguish between the return on assets and production assets (the indicator reflects the percentage of profit earned on the average cost of assets or production assets), return on capital (an indicator of the efficiency of using own funds of a company or bank). When evaluating investment projects, the indicator of return on investment is used - it is calculated as the ratio of net profit to the cost of initial investments.