How to determine the profitability of production
Video: Production Function Profit Maximization Problem 2024, July
Any commercial enterprise exists for one purpose - making a profit. However, obtaining a positive result does not show the effectiveness of the enterprise. More informative is profitability.
Instruction manual
1
The actual amount of net profit does not indicate whether this is a good result with the current value of fixed assets and costs. Profitability is a calculated relative indicator that expresses as a percentage the efficiency of use of monetary assets of the enterprise as a whole, as well as for individual components. Its actual value is a key role in solving the basic issues of enterprise functioning: both about volumes of fixed and variable costs, and about pricing.
2
The term "profitability" can be applied to various components. The main indicators are the overall profitability, profitability of current assets, fixed assets, use of personnel, equity, assets, sales, production, fixed assets, products, production assets, financial investments. The formulas for calculating these indicators have similar logic, but differ in the amounts that make up the divisor and dividend of the fraction in the formula. Determine the effectiveness of which tools you need to find out. Find the formula you are interested in in the search engine.
3
Learn what metrics are used in the formula. Find the exact articles and their components in the search engine. With high accuracy, gather information about the figures of interest for your company on the basis of documents on the financial results of operations and the cost of fixed and current assets. Calculate the profitability indicator using the appropriate formula.
4
It is conventionally believed that the rate of general profitability of an enterprise should be at least twenty percent. This largely depends on the size of the enterprise. For a stable position and further development of medium and small businesses, this indicator is higher and amounts to at least forty-five percent.
5
It makes sense to calculate the profitability of production in dynamics, considering indicators for the month, quarter and six months. Compare indicators of different periods and maintain a dynamic series of indicators to improve the quality of analytical analysis.
6
It is worth noting that the issue of measuring profitability is complex and multifaceted for presentation in such a short article. Start serious calculations only after studying professional literature on enterprise economics and business analysis.
