How to determine the rate of return

Video: Math in Daily Life : How to Calculate Rate of Return 2024, July

The rate of profit is an indicator that is defined as the percentage of profit for a certain period of time to the capital advanced at the beginning. In this case, they talk about the rate of return on assets or investments. When the ratio of profit to the costs necessary to obtain it, get the rate of return.

Instruction manual

In other words, this indicator reflects the increase in capital (production assets) that was invested in the production of goods and services. At the same time, advanced funds include production costs and wages for workers. Typically, the rate of return is calculated per year.

This coefficient clearly gives a characteristic of the company. The rate of profit is determined by two groups of factors: intra-production and market. The main factor determining it is the mass of profit. Everything that leads to an increase in the latter will not affect the degree of profitability of the business.

The rate of profit also depends on the composition of the funds advanced in production, in particular on the specific gravity of the wages of workers. Suppose that two enterprises invested the same amount of money in production, but one of them spent more money on hiring labor. Then it is here, provided that other factors remain unchanged, more profit will be received, which means that its norm will be higher.

The annual rate of profit also depends on the speed of turnover of funds used in the production process. With an increase in the turnover rate, the money spent is returned to the business owner faster. In this case, production volumes increase, profit increases, and, consequently, the effectiveness of the company.

The increase in the indicator we are considering contributes to cost savings on capital goods. They can be saved using advanced technologies, increasing the number of work shifts per day. As a result, production costs are reduced, which increases the profit of the company.

The rate of profit also depends on price fluctuations in the market and on the macroeconomic situation in general. Its functional purpose is that monopolistic firms use this indicator to establish and regulate prices. On the other hand, for society, the rate of profit regulates the relationship between supply and demand, in cases where this coefficient does not have a large difference in different industries.