How to calculate project profitability

Video: Measuring Project Profitability 2024, May

The first stage of the life cycle of any enterprise is the development of the project. All enterprises are created to bring profit to their founders, that is, to be profitable. Therefore, the importance of calculating the profitability indicator of the planned enterprise is an important step in the preparation of the project. Investors pay attention to the profitability indicator when preparing a decision on investing money in a project.

You will need

- calculator;
- a computer;
- primary documents.

Instruction manual

Calculate the planned volume of production and sales of products manufactured at the design enterprise. Carry out a marketing research. This is a very important and crucial step that will help you determine the parameters of supply and demand for a given product and its analogues, as well as a competitive price in the market. In a competitive market, starting production without conducting accurate and high-quality marketing research can lead to unforeseen financial problems, or even complete bankruptcy. Having determined the quantity of products sold, as well as the competitive price, you can calculate the project size of gross income from the sale of this type of product.

Calculate gross production costs. Gross expenses include: the cost of production and the cost of its sale. The cost of production is the total value of all costs associated with the production of this type of product. These costs include: remuneration of labor of the main production workers, expenses on capital and current repairs of equipment, transportation costs, expenses on labor protection and fire safety, other administrative expenses, etc.

Determine the value of the indicator of gross profit. Gross profit is the difference between the gross income from the sale of products and the gross expenses of the enterprise associated with the production of these products. If you know the sum of the indicators of gross profit and gross expenses, you can calculate the profitability indicator of the future enterprise. Project profitability is calculated as the quotient of dividing gross profit by gross expenses. Usually, the average allowable rate of profitability of production varies from 5-15%.