How to find product profitability

In a market economy, profit is the main indicator characterizing the efficiency of the enterprise. Profitability is a relative indicator that comprehensively reflects the level of efficiency in the use of labor, monetary, material goods and resources. The size of the profit you can determine the profitability of the enterprise, its current assets, capital, financial investments, products, services provided by the organization, etc.

You will need

• - calculator;

• - documents of financial and accounting reporting.

Instruction manual

1

First of all, think over the budget that you have for manufacturing products or providing services. The success and effectiveness of a particular type of product primarily depends on the quality of the forecast made for its further promotion on the market. This information can be obtained from reporting for the previous year to use it as a base for further forecasting.

2

Make an investment budget. The main purpose of this document is to provide for all necessary expenses, not income, since the planned products may not be profitable at all and, accordingly, will not bring any profit.

3

Relate the planned budget to the investment budget in order to determine if there is enough money to cover the costs used to produce the products and whether it is necessary to introduce new costs. If the amount of investment is insufficient, it is advisable to reassess the planned costs.

4

Develop a loan plan for a new type of product. It is especially important to check the estimated cost of the goods, since underreporting can lead to the need for a bank loan, which will entail the payment of interest, and ultimately lead to a decrease in the total amount of profit.

5

In order to calculate the profitability of goods and services, divide the amount of profit received by the total cost of production. The full cost of production is the total amount of expended resources (costs) for the production of goods or services. The result shows how much profit the company will receive from each ruble spent on the production of these products. If the value of the final indicator is more than 100%, then the company with 1 rub. the money spent will make a profit, if less - a loss. If the indicator is 100%, then the organization for the sale of this type of product will have neither profit nor loss.

note

Based on the obtained profitability indicators, it is possible to determine which types of products and services bring the highest profitability for the enterprise.

Useful advice

Profitability indicators are important in the general (comprehensive) analysis of the organization.

profitability over 100