Increased profitability. How to increase sales profitability in a competitive market

The essence of profitability and profitability indicators of an enterprise

In general, profitability means the ability to make a profit. Although profitability is not always the sole and main goal of an enterprise, it is an important feature that indicates the effectiveness of functioning in market conditions. Comparing profitability indicators with the values ​​of competitors, the requirements of owners, etc. can be said about the quality of work of the enterprise management.

The ability to generate a return on invested capital is a key determinant total cost company and the value of its securities. Consequently, for many analysts, consideration of profitability is a key focus of their analytical efforts.

Profitability reflects the company's competitive position in the market, expansion opportunities, and the quality of enterprise management. The income statement shows the sources of profits, components of income and expenses. Profits can be distributed to shareholders or reinvested in the company. Reinvested profits improve solvency and provide a financial cushion against short-term problems.

Profitability (as a system of indicators) is a system of indicators that allows you to determine the efficiency and effectiveness of the enterprise and its components in the direction of generating net profit and financial results. It can be used both at the planning stage and in the operational control of the enterprise, as well as at the end of the financial year when carrying out a retrospective assessment of the enterprise.

How to calculate profitability (formulas)

Form 2 Line 2400

(Form 1 Line 1600 for the base year + Form 1 Line 1600 a year earlier)*0.5

Return on Assets =

Net income (loss)

Calculation example. Net profit in 2014 amounted to 100 thousand rubles, the amount of assets in 2013 was 800 thousand rubles, and in 2014 - 900 thousand rubles. That is, the return on assets in 2014 will be = 100 / (800+900) * 0.5 * 100% = 11.76%.

Form 2 Line 2400

(Form 1 Line 1300 for the base year + Form 1 Line 1300 a year earlier)*0.5

Return on equity =

Net income (loss)

(F.1 S.1150 for the base year + F.1 S.1210 for the base year + F.1 S.1150 a year earlier + F.1 S. 1210 a year earlier)*0.5

Profitability production assets =

Net income (loss)

Average annual cost of production assets

Return on sales based on sales profit =

Profit (loss) from sales

Return on sales based on net profit =

Net income (loss)

Reinvestment rate =

(Increase in reserve capital and retained earnings (loss) for the year

Net income (loss)

(F.1 S.1360 for the base year + F.1 S.1370 for the base year - F.1 S. 1360 a year earlier - F.1 S. 1370 a year earlier)

F.1 S. 1300 for the base year

Stability factor economic growth =

Increase in reserve capital and retained earnings (loss) for the year

Amount of equity

Asset payback period, year =

((Form 1 Line 1600 for the base year + Form 1 Line 1600 a year earlier)*0.5)

Average annual asset value

Net income (loss)

((Form 1 Line 1300 for the base year + Form 1 Line 1300 a year earlier)*0.5)

Net income (loss)

Payback period of equity capital =

Average annual cost of equity

Net income (loss)

Understanding the calculation results and drawing conclusions on profitability indicators

In general, a high value of the profitability indicator indicates the efficient operation of the enterprise. The normative trend is to increase the importance of profitability indicators.

Return on assets shows the amount of net profit per 1 ruble. assets. That is, if, for example, the return on assets of an enterprise is 15%, this means that every ruble of assets that was used in the activities of the enterprise brought it 0.15 rubles. If the value of the indicator exceeds the cost of long-term borrowed funds, this indicates low profitability. Negative meaning indicates the degradation of the enterprise. A high value means the availability of resources to pay dividends to shareholders or support further development.

Return on equity

This indicator is one of the most important for enterprise owners. It demonstrates the effectiveness of the use of funds that belong to them. It is more appropriate to compare this indicator with alternative areas of investment. For example, if purchasing shares of another company could bring higher profits, then the return on equity indicator is not satisfactory. A negative value of the indicator indicates that the owners are losing money and it may be worth thinking about investing money in other enterprises. The normative trend is a constant increase in the indicator.

Profitability of production assets

This indicator indicates how much profit was generated by production assets - both current and non-current. That is, if the value of the indicator is 20%, then this means that each ruble of production assets brought 0.2 rubles of net profit. As in the previous case, a constant increase in the indicator indicates a constant increase in the efficiency of the production sector of the enterprise.

Return on sales based on sales profit

The indicator demonstrates the difference between sales income and the main costs of the enterprise - production, management, promotion of goods and services. This indicator allows you to determine the amount of funds that remain for other expenses - loan payments, repayment of income tax obligations, etc. The normative trend is an annual increase in value. High operating profit may indicate effective control of product costs.

Return on sales based on net profit

This indicator allows you to roughly determine how much profitability will increase when the sales level increases by 1 ruble. The value of the indicator indicates how much net profit the company received for each ruble of services or goods sold. A negative value indicates the need to search for reserves to reduce costs. A high value of the indicator may indicate the high value of the product or service for the consumer, a strong competitive position and a high level of management professionalism.

Reinvestment rate

The reinvestment ratio indicates the role of net profit in the development of the enterprise. An increase in the indicator indicates that more and more net profit is being directed not to the dividend payment fund, but to the enterprise development funds. These funds can be used for repairs or acquisition of new fixed assets, intangible assets, etc. If the value of the indicator is above 100%, then this means that net profit was not the only source of increasing the enterprise’s equity capital. A negative value of the indicator occurs only if the enterprise has financial problems.

Economic growth sustainability coefficient

The coefficient of sustainability of economic growth indicates the stability of the growth of the enterprise's own funds at the expense of profits. A high value indicates the importance of net profit for the continuous development of the enterprise and maintaining its competitiveness at the current level. A low value indicates that the enterprise redistributes profits in favor of the owners (if the return on equity was high), or that net profit is not enough to support the development of the enterprise (if the return on equity was low).

Asset payback period, g

The indicator indicates how long it will take for the company’s assets to double, provided that current profitability is maintained. For example, a high payback value indicates that the enterprise is low-performing. The normative trend is a decrease in the value of the indicator.

Payback period of equity capital, g

The indicator indicates how long it will take for the invested equity capital to fully pay for itself. A significant payback period indicates that the enterprise is ineffective. The normative trend is a decrease in the value of the indicator. If the indicator value is very high, then owners should think about investing in other areas.

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MINISTRY OF EDUCATION AND SCIENCE,

YOUTH AND SPORTS OF UKRAINE

ZAPORIZHIE INSTITUTE OF ECONOMICS AND INFORMATION TECHNOLOGIES

Department of International Economics

COURSE WORK

In the discipline "Enterprise Economics"

Topic: Ways to increase enterprise profitability

Supervisor

Safonova Tatyana Vladimirovna

Performed

student of the EP group - 128

Fomenko Natalya Valerievna

Zaporozhye 2011

INTRODUCTION

1. Profitability, its types and factors influencing it

2. Brief organizational economic characteristics enterprises

3. Assessment of the state of profitability of the enterprise

4. Ways to increase enterprise profitability

CONCLUSIONS AND OFFERS

LITERATURE

INTRODUCTION

The purpose of entrepreneurial activity is not only to make a profit, but also to ensure high profitability economic activity. Unlike the absolute indicator of profit, profitability is a relative indicator and reflects the degree of profitability of the enterprise. Profitability acts as an economic category, an estimated performance indicator, a target, a tool for calculating the net income of society, a source of formation of various funds.

As an effective indicator, it characterizes the efficiency of using available resources, success or failure in business, growth or decline in activity volumes.

As a quantitative indicator, profitability is the difference between the price and cost of goods, between sales volume and cost (in the sphere of circulation between gross income and turnover costs). Profitability, being the final result of an enterprise’s activities, creates conditions for its expansion, development, self-financing and increased competitiveness.

The relevance of the topic is explained by the fact that the market economy necessitates increasing production efficiency primarily at the micro level, i.e. at the level of individual enterprises, since it is enterprises (with any form of ownership) that form the basis market economy.

The object of the study is ZAO Zaporozhye Iron Ore Plant.

The subject of this course work is the profitability of ZhRK CJSC.

Consequently, the purpose of the course work is to study the dynamics of profitability indicators and identify reserves for increasing it at ZAO Zaporozhye Iron Ore Plant.

Based on the goal, we can formulate the following tasks:

– define profitability

– study the types of profitability and factors influencing it

- give brief description enterprise ZJSC "ZZHRK"

– assess the dynamics of product profitability, production and sales

– compare production profitability with minimum profitability

– develop ways to increase the profitability of the enterprise ZhRK CJSC

To solve the above problems, the annual financial statements of ZhRK CJSC for 2007-2008 will be used.

SECTION 1 PROFITABILITY, ITS TYPES AND FACTORS AFFECTING IT

profitability (from German rentabel - profitable, profitable), an indicator of the economic efficiency of production in enterprises. Reflects the use of material, labor and monetary resources. An enterprise that makes a profit is considered profitable.

In other sources: profitability is an indicator representing the ratio of profit to the amount of production costs, monetary investments in organizing commercial operations, or the amount of company property used to organize its activities.

Without analyzing the level of product profitability, it is impossible to correctly resolve structural issues industrial production, its specialization, location throughout the country, determine the efficiency of production of a particular product. Based on the level of profitability of products, the state sets the level of purchase prices for products.

The profitability indicator is interconnected with all indicators of production efficiency, in particular with the cost of production, the capital intensity of products and the speed of turnover of working capital.

Profitability has many modified forms, depending on what profits and resources (expenses) are used in the calculations. Therefore, we will consider several classifications indicated in different sources.

There are mainly five types of profitability:

– return on equity;

– return on assets;

– profitability of production assets;

– profitability of sales;

– product profitability.

The algorithm for calculating profitability is the ratio of the result obtained from using an object to the costs incurred. IN general view this can be represented as follows:

Return on equity reflects the share of profit in equity:

Return on assets (property) shows how much profit an enterprise receives from 1 hryvnia invested in assets:

The return on production assets shows how effective the return on assets is:

where OPF is the average value of fixed production assets;

OS is the average amount of working capital.

Profitability indicators are actively involved in the analysis of the financial and economic activities of an enterprise, financial planning, development of management decisions, and decision-making by creditors and investors.

Return on sales shows the amount of profit per 1 hryvnia of products sold:

Product profitability characterizes the yield of profit in the process of selling products per unit of costs in the core activities of enterprises

The main profitability indicators can be shown in Table 1.1. “Main indicators of profitability”, which are provided by prof. Butinets F.F. in his book “Economic Analysis”.

Table 1.1 Key profitability indicators

Investigating this issue, a more detailed classification of profitability was discovered:

– profitability of fixed assets

– coefficient of basic profitability of assets

– return on invested capital

– return on capital employed

– return on total assets

– return on business assets

– return on net assets

– margin profitability

But the above profitability indicators are rarely used by enterprises in calculations.

To assess the efficiency of an industrial enterprise, it is not enough to use only the profit indicator. For the efficiency of an enterprise, it is necessary to compare profit and the production assets with which it was created.

In this regard, two types of profitability are distinguished: profitability calculated on the basis of financial profit, and profitability calculated on the basis of net profit.

When calculating profitability, its indicator can be influenced by various factors. They are divided into:

1) external, which are related to the impact on the activities of the enterprise, market or state;

2) internal, i.e. those that the enterprise can change and regulate depending on its goals and objectives. Internal factors, in turn, are divided into production (directly related to the main activities of the enterprise) and non-production (not directly related to the production of products).

Among the production factors there are such as the use of means of labor, objects of labor and labor resources. They are important factors in increasing the profit of the enterprise and, accordingly, its profitability.

Production factors can influence the results of an enterprise’s activities from two positions - extensive (quantitative change in the parameters of production elements) and intensive (improving the quality of use of production factors).

In general, the factors influencing profitability indicators can be presented in the following diagram:

Factors influencing profitability indicators

Internal External

Rice. 1.1 Factors influencing profitability indicators

For an enterprise, indicators of fixed and working capital are important. Based on them, the turnover ratio is calculated, which shows that the faster the capital turns over in an enterprise, the less it is needed to produce a certain volume of products.

When studying return on capital, it is necessary to note its connection with return on sales and resource efficiency. This connection was first identified by the DuPont company: specialists from this company were the first to bring together the indicators of return on sales and return on assets and showed their relationship in the form of a triangular diagram. The diagram of this model looks like this:

Rice. 1.2 Diagram of the DuPont model

This model was based on the following relationship

Where is PE - net profit?

A - the amount of assets of the enterprise

Revenue - revenue from sales of products

It is also worth noting the fact that this DuPont model began to be used only recently. Before that she for a long time remained unclaimed.

SECTION 2 BRIEF ORGANIZATIONAL AND ECONOMIC CHARACTERISTICS OF THE ENTERPRISE

The full name of the organization is an enterprise with foreign investment in the form of a closed joint stock company"Zaporozhye Iron Ore Plant", which is located at: Zaporozhye region, Vasilievsky district, village. Malaya Belozerka, Veselovskoe highway 7 km.

CJSC ZZhRK specializes in the development of the South Belozerskoye and Pereverzevskoye iron ore deposits and the production of commercial iron ore.

The ceremonial release of the first iron ore from the Yuzhno-Belozersky deposit took place on August 28, 1967 at the Yuzhnaya mine. The first stage of the ZZHRK entered service on December 30, 1969. The extraction of raw materials is carried out in the most difficult hydrogeological conditions - under seven aquifers (including Buchaksky) at a depth of more than 600 m.

The deposit covers 2.5 km, the average thickness of the ore body is up to 60 m. Explored ore reserves are about 300 million tons.

The ore produced at the enterprise has the highest level of iron content in Ukraine (58-66%).

The ZZhRK structure includes mines, a crushing and sorting plant and auxiliary workshops: stowing, repair and mechanical, etc.

The main production unit for ore mining is the Operational mine, the largest in Ukraine in terms of production volume and number of employees. Its productivity is 3.3-3.5 million tons per year. The task of the Prokhodcheskaya mine is to open up and prepare the horizons.

Sinter, open-hearth and blast furnace ores are mined at ZZhRK. Of the total production volume, 85% is sinter ore, which contains 62% iron and is significantly superior in quality to the ore of the Krivoy Rog basin and other deposits of the European part of the CIS.

About 60% of products are exported to the Czech Republic, Slovakia, Poland and Austria, and the rest is supplied to Zaporizhstal. In addition, Zaporozhye ore goes to the Mariupol Metallurgical Plant named after. Ilyich.

The main indicators of the financial and economic activities of the enterprise can be presented in Table 2.1.

Table 2.1 Economic passport of the enterprise

Formulas for calculations

Based on the results of financial and economic activities, we can conclude that the enterprise CJSC ZZhRK significantly increased the scale of its activities in 2009 compared to 2008. This conclusion can be made based on the following indicators:

1) the volume of commercial products in wholesale current prices in 2009 compared to 2008 increased significantly and amounted to 255% of the 2008 figure;

2) the volume of commercial products in wholesale current prices in 2009 compared to 2008 increased significantly and amounted to 255% of the 2008 figure;

3) the number of industrial production personnel increased from 4196 people in 2008 to 4242 people in 2009;

4) the wage fund in 2009 increased from 111,327 thousand UAH. up to 189069 thousand UAH. and this increase had a negative impact on the activities of the enterprise;

5) the cost of the volume of products sold increased, which affected the increase in the price of products sold and the competitiveness of the enterprise;

6) positive trends were observed when assessing gross profit, which increased compared to 2008 and amounted to UAH 722,946 thousand, which amounted to 626% of the 2009 figure;

7) the product profitability indicator increased significantly in 2009 and amounted to 723% of the indicator for 2008;

8) in 2009, compared to 2008, the financial result from ordinary activities and net profit increased significantly;

9) due to such a sharp increase in net profit, the production profitability indicator increased from 7% in 2008 to 77% in 2009, which had a positive impact on the entire activity of the enterprise and on its investment attractiveness.

SECTION 3 ASSESSMENT OF THE STATE OF PROFITABILITY OF THE ENTERPRISE

3.1 Analysis of the profitability of production activities and the influence of factors on its change

Product profitability is an indicator characterizing the efficiency of an enterprise's costs for the production and sale of products. It is equal to the ratio of gross or net profit to the amount of costs for products sold.

This indicator shows how much gross profit the enterprise has from each hryvnia spent on production.

This indicator shows how much net profit the company has from each hryvnia spent on the production and sale of products.

It can be calculated for the enterprise as a whole, its individual divisions and types of products.

This ratio shows how profitable the final result of the main activity of the enterprise is. It helps, in particular, to solve current and strategic problems of the enterprise.

The goal of any enterprise in the market is to obtain maximum profit, so the enterprise needs to decide which products are unprofitable for production and sale, and which, on the contrary, should increase production volumes due to the high profitability of these products. To do this, the company needs to evaluate the profitability of each type of product and make an appropriate decision.

After assessing the profitability of each type of product, it is possible to determine reserves for reducing production costs, ways to improve product quality, and this, in turn, increases the profitability of products and improves the financial and economic condition of the enterprise.

When assessing relative performance indicators, important attention is paid to identifying the factors that influence changes in these indicators. In particular, the profitability of production activities is influenced by three factors presented in Figure 3.1.

Rice. 3.1 Factors influencing product profitability

Other factors influencing this profitability indicator also include product quality, market conditions, direct material costs, labor costs, etc.

When assessing the profitability of a product, it can be classified as follows:

1) by level of profitability:

a) unprofitable types of products;

b) low profitability;

c) average profitability;

d) high profitability.

2) by change in profitability compared to previous periods:

a) increasing the level of profitability;

b) a slight change in the level of profitability;

c) a decrease in the level of profitability.

To assess the profitability of ZZhRK CJSC products, it is necessary to compile a table with initial information for calculating the necessary indicators.

Table 3.1 Indicators for assessing the profitability of products of ZhRK CJSC

Rice. 3.1 Dynamics of profitability of products of the enterprise ZhRK CJSC

As can be seen from table. 3.2 the product profitability indicator in 2009 compared to 2008 increased significantly. The data obtained during the analysis indicate that the profitability of production activities in 2009 compared to 2008 increased by 87.6% due to the influence of two factors:

1) due to an increase in gross profit by UAH 607,441 thousand;

2) due to an increase in cost by 194,896 thousand UAH, which negatively affected the growth of product profitability, but did not lead the company to a loss due to an increase in gross profit;

In order for the profitability of products to grow at the same rate, the enterprise needs to evaluate the profitability of each type of product produced and, based on the results of such verification, determine which types of products should be produced in large quantities due to their high profitability, and which should be abandoned due to their unprofitability .

Thus, the above measures will increase the level of profitability of products, which will increase investment attractiveness, which is an important quality of any enterprise in modern market conditions.

3.2 Analysis of profitability of sales and the influence of factors on its change

The return on sales ratio is used to evaluate the efficiency of business activities and pricing processes.

Return on sales means a profitability ratio that shows the share of profit in each earned hryvnia of sold products. This coefficient characterizes the efficiency of the production and commercial activities of the enterprise.

To determine the profitability of sales are used different kinds profits: gross profit, sales profit, profit before tax, net profit. These indicators are correlated with the volume of products sold to determine how much profit accrues per unit of finished product. In this regard, the following formulas are used to assess the profitability of sales

Profit from product sales generally depends on the following factors:

1) product sales volume;

2) product structure;

3) production cost;

4) level of selling prices.

At the same time, product sales volume can have both a positive and negative impact on profits. Positive is observed in the case when the sales volume of profitable products increases, which leads to an increase in profits, and negative - in the case when the sales volume of unprofitable products increases, which will inevitably lead to a decrease in profits. In the same way, the structure of products has a double impact on the amount of profit, since if the share of profitable types of products increases, the amount of profit will increase, and if the share of unprofitable types increases, the amount of profit will decrease.

To assess the profitability of sales of the enterprise ZhRK CJSC, it is necessary to compile a table with initial information.

Table 3.2 Indicators for analyzing the profitability of sales at the ZJSC ZZHRK enterprise

Rice. 3.2 Dynamics of profitability of sales of the enterprise CJSC ZZHRK

As can be seen from Table 3.2, the return on sales in 2008 was 19%, and in the next year, 2009, this figure increased significantly and amounted to 48%, i.e. the deviation was +29%.

In order to increase the profitability of sales, the company needs to analyze the sales structure, determine which types of products are unprofitable and refuse to sell them due to their unprofitability. The company also needs to review the cost structure when calculating the cost of production and determine how this figure can be reduced.

3.3 Analysis of return on capital and the influence of factors on its change

Every company needs to know all the information about the profitability of its activities. Such an indicator may be the profitability of the enterprise (assets).

Profitability of an enterprise (assets) is an indicator that is an important characteristic of the factor environment for generating the profit of an enterprise.

This indicator is a mandatory element of analysis and evaluation financial condition enterprises. It is calculated as the ratio of profit (gross, operating, net) to the average annual value of the enterprise's assets.

Where R cap is return on capital, %

Average annual value of assets, thousand UAH.

In the economic literature, this indicator is most often called overall, economic profitability, profitability of production or return on capital.

The level and dynamics of this type of profitability can be influenced by various factors of production and economic activity. The main ones include (according to Moshensky):

1) level of organization of production and management;

2) capital structure;

3) the degree of use of production resources;

4) volume, quality and structure of products;

5) production costs and production costs;

6) profit by type of activity and direction of its use.

The return on equity indicator is of interest primarily to investors. And also for existing and potential owners and shareholders. Return on equity shows how much profit each monetary unit invested by the owners of capital brings. Return on equity is calculated using the formula:

It is the main indicator used to characterize the effectiveness of investments in activities of one type or another.

In foreign practice, the concept of a profitability threshold, or break-even point, and a margin of financial strength of an enterprise is often used.

The profitability threshold usually means such a volume of sales revenue at which the profit is zero, but at the same time the enterprise fully covers its costs.

In addition to this indicator, an indicator of financial strength is also used, showing how much sales revenue exceeds the profitability threshold. If this value is negative, then the enterprise is unprofitable.

To assess the level of return on capital of the enterprise we are considering, it is necessary to compile a table with the initial information for calculating the indicator.

Table 3.3 Indicators for analyzing the return on capital of the enterprise ZhRK CJSC

Rice. 3.3 Dynamics of return on capital of the enterprise ZhRK CJSC

As can be seen from table. 3.3, return on capital at the enterprise CJSC ZZhRK increased significantly in 2009 compared to 2008 from 15.5% to 136% due to a change in the net profit of the enterprise. Return on equity was virtually unaffected by changes in the cost of capital. But, due to the fact that the profit factor had a greater impact on the profitability indicator than the change in the amount of capital, this resulted in an increase in return on capital, which means the fact that the company rationally organized its activities and responded well to changes occurring in the market .

Return on equity increased from 7.3% to 81.9%. The equity capital indicator indicates that each hryvnia invested by the owners of capital brought a profit of 7.3 kopecks. in 2008, and 81.9 kopecks. in 2009.

In order to increase the level of return on capital in the future, the company needs to carefully consider all planned indicators for next year and improve its trade policy in order to respond quickly to any external changes in the structure of the goods market.

3.4 Cost-benefit analysis using the DuPont Model

To spend overall rating situation at the enterprise, it is enough to study the influence of general factors on the level of return on capital, i.e. first level factors. However, when it is necessary to improve capital efficiency indicators, analysis is carried out based on more detailed factor models.

Of the various models of factor analysis of return on equity, the simplest is the two-factor model of equity analysis (Dupont Model).

Where: P cap - return on capital, %

PE - net profit, thousand UAH.

VFD - net sold products, thousand UAH.

Average annual amount of capital, thousand UAH.

R sales - profitability of sales, thousand UAH.

O cap - capital turnover, times.

This model shows that return on equity is equal to the product of two factors: return on sales and capital turnover ratio. The first of these factors shows the effectiveness of the enterprise’s core activities related to the production and sale of products (goods, works, services), and the second shows the turnover rate of its property. Return on equity, based on the DuPont model, is a synthetic indicator and combines both aspects of its activity.

To estimate the return on capital using the DuPont model at the ZZhRK CJSC enterprise, you must first build a table with the initial data.

Table 3.4 Indicators for analyzing return on capital using the DuPont model at ZhRK CJSC

Rice. 3.4. Dynamics of return on capital of the enterprise ZhRK CJSC using the DuPont Model

To quantify the impact of changes in each factor on changes in the performance indicator (return on capital), you can use the chain substitution method.

To do this, we will carry out the following calculations:

1). We build a factor model of return on capital:

2). we find the change in return on equity in 2009 compared to 2008:

3). We replace the planned indicator with the actual one:

4). we measure the influence of factors on changes in the result:

5). we check

As can be seen from the above calculations, return on equity in 2009 compared to 2008 increased by 121.5%. As we found out, this was a consequence of the influence on it of changes in the return on sales indicator, which gave such an increase in the level of return on capital.

Thus, at the enterprise we are considering, for further growth of return on capital, it is necessary to improve the efficiency of its activities related to the production and sale of products (goods, works, services). This can be done in the following ways: searching for new markets, abandoning unprofitable types of products, improving product quality, reducing production costs, etc.

enterprise profitability indicator

SECTION 4 WAYS TO INCREASE PROFITABILITY OF AN ENTERPRISE

Profitability is a complex category. It shows how profitable the activity of the enterprise is, and, therefore, the higher the profitability indicators, the more effective the activity. Therefore, the enterprise needs to find new ways to increase profitability in order to ensure higher performance.

The alternative to finding ways to increase profitability is determined by the variety of its indicators. It should also be taken into account that when analyzing ways to increase profitability, it is important to separate the influence of external and internal factors. An external factor includes the expansion of the market for products by reducing the price of the goods offered. Internal factors are more important than external ones. These include: increasing production volumes, reducing production costs, increasing the return on fixed assets, etc.

An equally important factor affecting profitability is the presence of debts and arrears in the enterprise. The most optimal situation is when the company resorts to additional loans in order to update equipment or assortment.

The source of growth in the profitability indicator may be the introduction of innovations that make it possible to produce the new kind goods with best quality, develop new markets for products, introduce organizational and managerial innovations, etc.

Any commercial organization and the company strives to develop and expand its activities. The growth and development of an enterprise, in particular an industrial enterprise, is closely related to the development and implementation of strategies and tactics for managing the process of forming, increasing and distributing profitability. In theory, there are different views and opinions on the process of increasing this indicator, different approaches to the implementation of this process. According to one of many approaches, the growth of enterprise profitability is facilitated by the manipulation of three factors that determine its profitability:

1) acceleration of turnover;

2) reducing the mass of costs;

3) increasing the rate of profitability by raising prices.

However, these factors are not the only ones. Western enterprises adhere to the theory that the long-term profitability of an enterprise depends on more than 30 factors. They include the state of the situation in the manufacturer's market, the market situation, and the presence of competitors. But before changing any factor, it is necessary to decide for what purpose it will be done. There are 4 types of innovations that generate profitability:

1) sale of new goods, goods with higher quality characteristics compared to previously and currently sold products;

2) development of a new market;

3) introduction of new sales methods, provision of additional services, development of new sources of supply of goods;

4) organizational and managerial innovations.

The first type ensures an increase in profitability indicators with a simultaneous increase in sales volumes. The second type creates conditions for increasing the mass of profitability due to the growth of working capital. The third type involves the implementation of one of the strategies:

1) a reduction in price while reducing the cost of production and sales of goods in anticipation of such an increase in sales that will increase the profit margin;

2) do not change the sales price, then profitability will increase due to an increase in the rate of business income.

As a result of the fourth type of innovation, labor productivity should increase, inventory turnover should accelerate, and the efficiency of resource use should increase.

In this course work It was found that the profitability of the enterprise ZhRK CJSC in 2009 compared to 2008 increased significantly, which is due to the influence of various factors. It is advisable to look for ways to increase the profitability indicator in the following articles of financial statements:

1) volume of commercial products at wholesale current prices;

2) number of PPP;

3) the volume of gross profit;

4) financial results from ordinary activities;

5) the amount of net profit.

Based on the information on the enterprise’s expenses (Form 2 “Report on financial results” for 2009), we can conclude that the most appropriate decision that a manager can make to increase the profitability indicator is to organize strict control over the enterprise’s expenses, draw up estimates for expenses.

CONCLUSIONS AND OFFERS

The profitability indicator is particularly important in modern market conditions, when management needs to make extraordinary decisions to ensure profitability and create the financial stability of the enterprise.

The goal of any enterprise is, ultimately, to achieve high profitability, which can ensure the further development of the enterprise. Profitability is not only the main goal, but also the main condition business activity enterprise, the result of its activities.

The significance of the profitability ratio is very high, since not only the managers and employees of the enterprise are interested in it, but also the state, lenders, borrowers, and other counterparties. Increasing the level of profitability for an enterprise means increasing its financial stability, and, accordingly, an increase in funds aimed at material incentives, and for management, profitability shows information about the results of the tactics and strategies used.

Profitability, taking into account the differences between its expected and received levels, performs the following four functions:

1) expected profitability is the basis for making investment decisions;

2) the resulting profitability serves as a measure of the enterprise’s performance;

3) part of the profitability obtained is a source of self-financing of the enterprise;

4) part of the profitability comes as a reward to the owners of capital (under the conditions of a joint-stock form of ownership).

In this course work, such profitability indicators as product profitability, return on capital and return on sales were analyzed.

The purpose of analyzing the profitability indicator of production activities at an enterprise was to determine the value of this indicator and identify factors influencing its formation, as well as identifying measures to increase profitability. These activities include: assessing the profitability of each type of product, and then making a decision regarding the production of these types of products if they turn out to be unprofitable.

After analyzing the profitability of products, we determined that the profitability indicator in 2009 compared to 2008 increased from 26.2% to 113.7%. We found out that this fact was caused by the fact that the gross profit indicator, which directly affects the profitability indicator, increased in 2009 compared to 2008 by UAH 607,441 thousand. In turn, the cost of goods sold, which inversely affects the profitability indicator, increased by 194,896 thousand . UAH

The return on sales indicator characterizes the efficiency of production and commercial activities and shows how much net profit the company has per hryvnia of products sold. Based on these indicators, the effectiveness of enterprise management is assessed, i.e. its ability to generate profits from its core activities. However, this indicator is quite problematic, since there are many algorithms for its calculation. This, in turn, does not allow us to correctly evaluate this indicator.

An analysis of this indicator at the ZZhRK CJSC showed that the profitability of sales in 2009 compared to 2008 increased from 19% to 48%. This was a consequence of the fact that in 2009 sales revenue increased significantly - from UAH 602,072 thousand. in 2008 to 1500668 thousand UAH. in 2009. In order to increase profitability, the company needs to analyze the sales structure and refuse to sell those types of products that are unprofitable.

By analyzing the return on capital indicator of an enterprise, it is possible to determine the level of their management, further development prospects, the competitiveness of the enterprise under study in the market, and for investors to determine the profitability of investing capital.

When analyzing the return on capital at the enterprise ZhRK CJSC, we determined that the profitability indicator in 2009 compared to 2008 increased significantly from 15.5% to 136%. This was a consequence of the fact that the company’s net profit increased significantly in 2009 (from UAH 26,262 thousand to UAH 551,370 thousand), which directly affects the return on capital indicator. Also, in the course of analyzing the return on capital of the enterprise, we discovered that its indicator in 2009 was positively influenced by the increase in the net profit of the enterprise, associated with the rational organization of the main activities of the enterprise. Therefore, from an investment point of view, we can say that this enterprise is attractive for investment.

To eliminate all factors that negatively affect the formation of profitability and financial stability indicators, the management of the enterprise needs to take the following measures:

1) ensure rapid growth of financial results over total capital by intensifying the labor of workers and reducing material intensity, energy intensity and labor intensity of products;

2) introduction of new technologies to reduce production costs;

3) identifying the most profitable types of products and optimizing the structure of their sales;

4) strict control over costs in all areas of the enterprise by drawing up cost estimates.

BIBLIOGRAPHY

1. Moshensky S.Z., Oleynik O.V. Economic analysis: A textbook for students of economic specialties of higher educational institutions. / Ed. Prof., Honored Worker of Science and Technology of Ukraine F. F. Butints. - 2nd ed., add. and processed - Zhitomir: PE “Ruta”, 2007. - 704 p.;

2. Economic analysis: Textbook / Ed. prof. A. G. Zagorodny. - 3rd ed., revised. and additional - M.: Knowledge, 2008. - 487 pp.;

3. Economics of an industrial enterprise: Textbook. - 2nd ed., revised. and additional - M.: INFRA-M, 1999. - 336 p.;

4. Savitskaya G.V. Economic analysis of enterprise activity: Scientific manual - 2nd ed., revised. and additional - K.: Knowledge, 2005. - 662 p.;

5. Skull A.V. “Economic analysis”: Basic handbook. - L.: Condor, 2005. - 160s.;

6. Scientific journal “Economy of Ukraine”, No. 8 (565), 2009. “Determination of priority types of products of an industrial enterprise in market conditions” Poshivalov V., Ryzhov V., p.25;

7. Magazine “Business” No. 13 (532), No. 13 (532), 03/31/2003

8. Magazine “Commercial Director” No. 11, November 2006 “Calculates profitability correctly,” Vasiliev D.

9. Ivanilov O. S. Economics of enterprise: textbook [for students of higher scientific institutions] / O. S. Ivanilov - K.: Center educational literature, 2009. 728 p.

10. Ivakhnenko V. M. Course of economic analysis: Scientific manual. - 5th ed., revised. and additional - K.: Knowledge, 2006. - 261 p.

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Determining the content and meaning of profitability in a market economy. Objectives of analyzing enterprise profitability indicators: assessing the economic situation; reserves for increasing the efficiency of economic activity; preparation of management decisions.

Introduction........................................................ ........................................................ .......3

Chapter 1. Theoretical foundations of profitability management

enterprises........................................................ ........................................................ .6

1.1. The essence and concept of enterprise profitability.................................................6

1.2. Profitability indicators................................................... ...................10

1.3. Factors influencing increased profitability of work

enterprises........................................................ ...........................................25

Chapter 2. Analysis of enterprise profitability using an example

LLC "Sarvent S"................................................. ...........................................28

2.1. general characteristics enterprises........................................................ ....28

2.2. Organization accounting enterprises...................................31

2.3. Organizational structure enterprises................................................36

2.4. Enterprise profitability analysis................................................................... .....38

Chapter 3. Ways to increase the profitability of an enterprise.................................47

3.1. Ways to increase and reserves for growth of trading profitability

enterprises........................................................ ...........................................47

Conclusion................................................. ........................................................ ...54

List of used literature........................................................ .........58

Application................................................. ........................................................ ..60

Introduction

Currently, in a market economy, more and more trading enterprises are appearing. Every company strives to make as much profit as possible at minimal cost. To ensure the profitability of his business, an entrepreneur should deeply analyze the current situation on the market, as well as within his enterprise. Achievement main goal- profit maximization is possible only with proper and thoughtful planning of activities trading enterprise.

There are two main indicators of the effectiveness of an enterprise's trading activities: profit and profitability. The first of them, strictly speaking, is the goal of the enterprise, the second indicator - the profitability indicator - allows you to accurately assess the level of development of a trading enterprise both as a whole and from various aspects.

A general indicator of economic efficiency is the profitability indicator. Profitability means the profitability of an enterprise. It is calculated by comparing gross revenue or profit with costs or resources used.

Based on the analysis of average profitability levels, it is possible to determine which types of products and which business units provide greater profitability. This becomes especially important in modern market conditions, where the financial stability of an enterprise depends on the specialization and concentration of production.

In a market economy, the performance of a trading enterprise is assessed by a system of indicators, the main one of which is profitability. Profitability is defined as the ratio of profit to one of the indicators of the functioning of a trading enterprise. When calculating profitability, various profit indicators are used. Profitability indicators make it possible to identify not only the overall efficiency of a trading enterprise, but also to evaluate various aspects of its activities.

There are systems of profitability indicators, the main one of which is the indicator of the overall economic profitability of a trading enterprise.

The next indicator is an indicator characterizing the efficiency of using equity capital.

This indicator is important for shareholders of a trading company. It serves as a criterion for assessing the level of quotation of shares of a joint-stock trading enterprise on the stock exchange. This indicator allows investors to assess the potential income from investing in stocks and other securities. There is also an indicator of return on total capital, which is found by dividing the amount of profit by the amount of total capital.

Along with the main profitability indicators, it is used a large number of private indicators, such as: profitability efficiency running costs(ratio of profit to distribution costs), profitability of living labor costs (ratio of profit to wages), profitability of working capital (ratio of profit to the average value of working capital), profitability of efficiency of use work force(ratio of profit to the number of workers employed at the enterprise), profitability of the efficiency of use of retail space, profitability of the efficiency of use of fixed capital, etc. Particular profitability indicators characterize the efficiency of use of certain types of resources by trading enterprises.

Profitability is one of the most important indicators of the economic activity of a trading enterprise, therefore, in the analysis, along with profitability indicators, their dynamics are used.

Subject thesis is of obvious theoretical and practical interest. The relevance of the topic is explained by the fact that the market economy necessitates increasing production efficiency primarily at the micro level, i.e. at the level of individual enterprises, since it is enterprises (with any form of ownership) that form the basis of a market economy.

The object of the study is Sarvent S LLC. The subject of the study is organizational and economic relations related to increasing the profitability of the enterprise.

The purpose of this thesis is:

Study the theoretical aspects, essence and concept of enterprise profitability;

Identify key profitability indicators;

Conduct an analysis of the financial and economic activities of Sarvent S LLC;

Suggest measures aimed at increasing production profitability.

The following internal materials were used in this work:

Charter of Sarvent S LLC;

Regulations on the accounting policies of Sarent S LLC;

Accounting statements for 2008 – 2009

The thesis consists of an introduction, three main chapters, a conclusion, a list of references and applications.

Chapter 1. Theoretical foundations of enterprise profitability management

1.1. The essence and concept of enterprise profitability

In economic analysis, the performance of enterprises can be assessed by indicators such as production volume, sales volume, and profit. However, the values ​​of the listed indicators are not enough to form an opinion about the effectiveness of its activities. This is due to the fact that these indicators are absolute characteristics of the enterprise’s activities, and their correct interpretation for assessing performance can only be carried out in conjunction with other indicators that reflect the funds invested in the enterprise. Therefore, to characterize the efficiency of the enterprise as a whole, the profitability of various areas of activity (economic, financial, entrepreneurial) in economic analysis, profitability indicators are calculated.

Profitability (from German rentabel - profitable, profitable), an indicator of the economic efficiency of production in enterprises. Complexly reflects the use of material, labor and monetary resources. An enterprise that makes a profit is considered profitable.

One more concept of profitability can be cited: profitability is an indicator representing the ratio of profit to the amount of production costs, monetary investments in organizing commercial operations, or the amount of property of the company used to organize its activities.

Profitability is divided as general - the percentage ratio of balance sheet (total) profit to the average annual total cost of production fixed assets and normalized working capital; and estimated profitability - the ratio of estimated profit to the average annual cost of those production assets from which payment for the assets is charged. An indicator of the level of profitability to current costs is also used - the ratio of profit to the cost of commercial or sold products.

Each enterprise independently carries out its production and economic activities on the principles of self-sufficiency and profitability. The enterprise has certain costs for the manufacture of products and their sale. These costs represent the production costs of a given enterprise (cost price), or individual costs. However, the costs of an individual product for enterprises may deviate from the average costs for the industry, which are accepted as social necessary costs or value, the monetary value of which is the price of the product. The presence of individual costs gives rise to the isolation of another part of the cost of production - profit, and, consequently, its relative measurement - profitability.

However, the absolute value of profit does not provide an idea of ​​the level and changes in the efficiency of production or trade. The amount of profit may increase, but production efficiency may remain the same or even decrease. This happens if the increase in profit is obtained due to extensive (quantitative) factors of production - an increase in the number of employees, an increase in the equipment fleet, etc. If, as the number of workers increases, their productivity remains the same or decreases, then production efficiency accordingly does not change or even decreases. The main distinguishing features of profitability in the system of trade and industrial relations are the following:

The ratio of profit to production costs, characterizing the level of profitability of current costs (for the purchase of raw materials, materials, fuel, for depreciation of labor instruments, expenses for management and maintenance of production and wages of workers);

Svetoshova Ksenia Sergeevna
Kuban State Agrarian University
Svetoshova Ksenia Sergeevna
Kuban State Agrarian University

Annotation: The article is devoted to valuation issues and ways to increase profitability. The work analyzes various approaches to determining profitability, indicators and evaluation methods. The main ways to increase profitability, in particular financial controlling, are considered

Abstract: Article is devoted to the evaluation and ways to improve profitability. This paper analyzes the different approaches to determining the profitability indicators and evaluation methods. The main ways to increase profitability, in particular, financial controlling

Keywords:: enterprise, profit, profitability, cost, financial controlling

Keywords: company, profit, profitability, costs, financial controlling

The final, important sign of the overall return on production in a free market economy is profitability and profitability. Profitability management (planning, justification and analysis-control) is one of the main tasks of the enterprise. This indicator allows you to detect errors in business activities, indicate to management the path for further development and identify reserves for maximizing profits. The relevance of this topic is determined by the fact that in modern conditions, without a qualitative analysis of the profitability of an enterprise and identifying factors that influence this indicator, it is impossible to increase the level of income received.

In the scientific literature, two main approaches have emerged to determine profitability.

The first group of economists combines profitability with the category of profit. “Directly related to the category of profit,” notes M.S. Atlas, “is connected the use in a socialist society of another value category - profitability.”

The main question is the impossibility of the concept of profitability as a financial ratio existing without profit.

Tsagolova N.A., Cherkovtsa V.N., Medvedeva V.A., Dzarasova S.S. and many other economists narrowed the concept of profitability, defining it by the management system and profitability of the enterprise. But, to date, not enough research has been conducted on ways to increase the profitability of enterprises in modern Russian conditions.

According to official data from the Federal State Statistics Service, the average profitability of goods sold by Russian enterprises for the period 2011-2015. (products, works, services), calculated as the ratio between the value of the balanced financial result (profit minus loss) from the sale of goods (products, works, services) and the cost of goods sold (products, works, services), taking into account commercial and administrative expenses. There is a decrease in the average profitability of goods sold (products, works, services) of enterprises in the Russian Federation for 2011-2015. Thus, during the period under review, the profitability of enterprises in the Russian Federation decreased by 2.8% and in 2015 this figure was 8.6%, although the profitability of enterprises in 2011 averaged 11.4%, this indicates the existing problem of reducing the indicator and the need to find ways to increase it at Russian enterprises.

Profitability helps to evaluate the efficiency of enterprise management; therefore, the high profit and profitability of the enterprise is largely due to the rationality of management decisions made at the enterprise. Hence, profitability can be discussed as one of the criteria for management quality.

Profitability - the concept comes from German word“RENTABEL”, which is interpreted as “justifying the costs, expedient from an economic point of view.” This indicator means that the funds received by the enterprise from the sale of its products reimburse the cost and, in addition, provide income. Profitability characterizes the economic efficiency of an enterprise over a certain period of time. Along with the profitability of individual enterprises and branches of production, the socialist economy achieves the highest level of profitability, inaccessible to capitalism, on an entire scale. National economy. This means that profitability is determined not from the point of view of individual enterprises or industries and not in the context of one year, but from the point of view of the entire national economy and in the context of a long period of time. The profitability of individual industries and enterprises is of subordinate importance in relation to national economic profitability. Increasing the profitability of individual enterprises and entire sectors of the economy helps accelerate the pace of development of the entire national economy.”

As noted by the authors A. A. Volodin and N. F. Samsonov, the profitability indicator can be used in the process of profit forecasting, establishing a connection between the amount of profit and the amount of invested capital. Estimated profit is estimated based on the level of profitability in previous periods, taking into account projected changes. According to Epstein D., profitability is a complex category. It shows how profitable the company's activities are, and, therefore, the higher the profitability indicators, the more successful the activity. For this reason, the enterprise needs to find new ways to increase profitability in order to ensure the most the highest characteristics. G.V. Savitskaya gives the following definition in her works that “profitability is a relative indicator that determines the level of profitability of a business.” Thus, profitability indicators determine the efficiency of the organization as a whole, profitability in various areas of activity (production, commercial, investment and others), which in more detail than the organization’s profit characterize the final results of the activity, because their value shows the ratio of the effect to cash or consumed resources.

Thus, profitability is not only a calculated value and a static indicator, but also a criterion used for a comprehensive assessment of the socio-economic position of an organization in the market. The profit received for different enterprises may be the same, but obtained under different conditions. Thus, this is the reason for using profitability indicators, since they help to evaluate an economic entity without relying on the size and nature of the activity.

In accounting, profitability is considered as a two-component component:

— profitability of business activities, which is the result of operating activities (profitability is influenced by accounting policies);

— potential profitability, presented in the form of income from the ownership of securities, long-term liabilities and inventories.

Therefore, an enterprise is profitable if the revenue from the sale of products is greater than production costs, and the necessary amount of profit is generated for the continuous operation of the organization. Profitability indicators are subject to less distorting influence of inflation than profit indicators, since profitability is the ratio of results and resources.

Analysis of profitability of sales as part of a comprehensive assessment of the effectiveness of the enterprise's results makes it possible to consider profit in several of its types. The ratio of gross profit to revenue shows how much from the sale of products an organization can use to cover selling and administrative expenses. If we consider the profit from sales to revenue, we get the “purity of an analytical experiment,” that is, this indicator is not influenced by such items as other income and expenses.

This indicator helps evaluate the effectiveness of product sales management. In the case of the ratio of profit before tax and revenue, the influence of other factors, including tax, is taken into account. The “quality” of profits will also decrease with the increasing influence of other expenses. Using the amount of net profit in the calculation, we obtain the final indicator in the system of profitability of sales indicators, reflecting the influence of the entire set of income and expenses.

In this regard, increasing the profitability of the organization will be a key area of ​​activity in modern conditions, associated with optimizing existing costs and increasing expected income.

The calculation of planned profitability is made by comparing the volume of gross profit or income of the company with the production costs incurred or with the volume of resources used.

Having carried out a certain analysis of the average level of profitability, it becomes possible to determine which products and which specific divisions of the enterprise create the required level of profitability, and which lead to losses. Such information in a particularly competitive market economy is the most important, since financial indicators will directly depend on the specialization and concentration of production.

An increase in sales profitability is influenced by a decrease in production costs, as well as an increase in the volume of its sales. To increase sales, it is necessary not only to carry out marketing activities, but also to produce products that meet the requirements of consumers and are in stable demand among them.

Each organization must have units that analyze the cost of manufactured products and, at the same time, carry out a large-scale program of measures to reduce it. This work requires an integrated approach, that is, it is necessary to take into account all possible factors that influence the formation of the costs incurred for the production and sale of finished products.

In addition, increasing the profitability of the enterprise and measures aimed at optimizing the use of staff working time have a positive effect.

Thus, enterprises are developing a set of measures that help increase the profitability of the enterprise. Such measures include reducing production costs, using energy-saving or other technologies, as well as technical modernization of the company. In addition, to increase certain profitability indicators, various methods can be used to reduce the cost of finished products or services supplied by the company to the market.

It is important to note that the main ways to increase the profitability of an enterprise also include: increasing sales volume, increasing the price of manufactured products (goods, services), changing the structure of products sold on the market. To implement these methods, an enterprise needs to use innovative technologies sales and production management structure.

One of these ways to increase profitability in an enterprise is financial controlling. This system ensures the concentration of decisive actions in the main areas financial system enterprise, which makes it possible to identify deviations of actual results from normative ones, and the use of competent management in order to increase the efficiency of the enterprise. It is controlling that supplies the organization’s management with the necessary information data. In any enterprise, controlling includes such elements as planning, goal setting, monitoring execution, and decision making. Liquidity support is the main task of financial controlling, indicating the enterprise’s readiness to repay debts at any time. Sustainable solvency is achieved along with the required level of profitability.

Financial controlling allows you to measure the maximum deviation of the actual results of financial activities from the planned ones, monitor the implementation of financial tasks established by the system of standards and indicators, develop management decisions to improve financial activities, adjust individual indicators and goals of financial development in accordance with the current market conditions and the external environment, predict, based on the size of deviations, possible deterioration in financial condition and a significant decrease in the pace of development.

Consequently, financial controlling, in addition to internal control of financial transactions, coordinates the relationship between the creation of an information base, financial planning, financial analysis and internal financial control.

Along with this, increasing the profitability of the organization can be facilitated by the involvement of audit firms by the company management that can evaluate the business processes that are built in the enterprise, as well as help assess the flow of financial resources. It happens that the low profitability of an enterprise is associated with the dishonest performance by the enterprise’s managers of their functions.

Increasing profitability in conditions of increased competition is the primary task of the enterprise. The main source of free Money organization is the revenue received by the enterprise as a result of the sale of manufactured products. Hence, the main direction of activity of an economic entity is, first of all, increasing profitability, using the method of reducing possible costs and observing the appropriate savings regime and more efficiently using the resources at the disposal of the organization. These costs determine the level of income and the cost structure. Since the costs of raw materials occupy a significant share in the structure, an increase in the level of profitability of the enterprise and a decrease in the cost of manufactured products will significantly affect the amount of profit received. This makes it possible to obtain increased profits, which will certainly have a positive impact on the break-even indicator of the enterprise.

Thus, increasing the profitability of enterprises in modern conditions takes on a paramount role, and the management of organizations needs to use all possible ways to increase this indicator in order to increase profits, which will ultimately affect the improvement of the efficiency of the business entity itself as a whole.

Bibliography

Evgeny Smirnov

# Business nuances

Ways to increase profitability

It is believed that profitability can be increased by reducing costs and expanding sales. This opinion is generally correct, but greatly simplified. In fact, to effectively control profitability, it is necessary to take into account many factors, internal and external.

Article navigation

• Ways to increase profitability
• Formula for calculating profitability
• Cost optimization and cost reduction methods
• Assessing the profitability of attracting investments

There is no more important task for a business manager than increasing profitability. Every ruble, dollar or other currency invested in a business should yield maximum profit. It is towards this goal that management efforts are directed at all times. The article is devoted to ways and means of increasing profitability, regardless of whether it is high or low.

Ways to increase profitability

The term profitability comes from the German word Rentabel, which translates to profitability. It characterizes the efficiency of commercial use of resources available to the business structure. In general, the profitability indicator is considered as the ratio of results to costs. At its core, this is an economic analogue of the physical efficiency factor, only instead of energy parameters, financial parameters are used.

Objectively, there are only two ways to increase profitability: reducing costs and increasing turnover. Moreover, both methods are often interrelated and in practice have many side branches.

It is believed that profitability can be increased by reducing costs and expanding sales. This opinion is generally correct, but greatly simplified. In fact, to effectively control profitability, it is necessary to take into account many factors, internal and external. For this reason, specific indicators of profitability are distinguished: sales, assets, production, equity and debt capital, fixed assets and others. There is no point in considering all the coefficients in this article in detail - there are many of them, and they are available in our other articles.

The dual task of reducing costs and expanding sales is solved using general methods:

• introduction of innovations;
• diversification of material flows;
• optimization of credit policy and taxation.

At the same time, the application of each of the above methods can be implemented in various ways. The statement that the growth of sales profitability is facilitated by an increase in turnover can be explained with a simple example.

Let’s assume that the full reproduction cycle lasts exactly a year and the sold product brings 10% of net profit. Obviously, if an enterprise can produce and sell the same product twice as fast (in six months), then the increase in profitability will be 100%, and the profitability rate will rise to at least 20%, since the efficiency of investments for the same reporting period is taken into account. The “at least” clause is due to the fact that the profit of each cycle can also be invested in turnover and bring its own financial result.

The impact of cost cutting is equally clear. The smaller their share in the price of the product, the more profitable its production. The topic of cost reduction is very interesting and requires more detailed story– the article will devote a separate chapter to it.

The return on equity is affected by the share of borrowed funds in its composition.

The profitability of fixed assets increases if they are operated most efficiently.

Assets are also used with greater or lesser profitability. Conducting financial transactions (for example, on the stock or credit market) can help increase the overall profitability of the enterprise.

From all this we can conclude that in addition to overall profitability, its analytical accounting is necessary in certain areas and aspects of the financial and economic activities of the enterprise.

• Each of them has its own growth and decline factors. These include:
• rational organization of management and production;
• efficient use of available resources, including natural ones;
• production volume, quality indicators of the product and its range;
• production cost and additional production costs);
• profitability of individual types of activities by area;
• directions for using profits.

In turn, the income received by the enterprise can be used for various purposes:

• replenishment of reserve capital;
• formation of consumption and accumulation funds;
• self-financing (own sources of investment for new projects);
• investments in shares and bonds of third-party structures, formation of packages of securities (external profitable investment);
• other assets.

Other methods of increasing profitability are also practiced:

• savings on commercial and entertainment expenses;
• carrying out operations for the resale of property;
• reduction of commissions paid to intermediaries;
• minimizing fines, penalties, penalties, etc.

These expense items affect the so-called accounting profitability, the increase in which is due to the implementation of measures to improve financial discipline.

Return on assets reflects the profit generated by their operation. Ineffective fixed assets and property that is subject to property tax, but brings little benefit to the enterprise, are subject to liquidation, sale or transfer free of charge.

Formula for calculating profitability

In general, the formula by which you can calculate profitability or one of its types by direction is a fraction. It correlates the income received and the expenses incurred in order to achieve a financial result.

The value of the sales return indicator RR is calculated using the formula:

Where:
PR – gross profit from product sales;
TR – amount of revenue.

For ease of perception, the profitability ratios are summarized in a table.

The resulting coefficient should be multiplied by 100% to convert it into percentage form.

Average annual values ​​of funds (fixed and current) are most often determined as the arithmetic average of the values ​​at the beginning and end of the reporting period. The amounts of output volumes are taken in the balance sheet in line 12105 at the end of the reporting period.

Cost optimization and cost reduction methods

When developing measures to improve the economic efficiency of production, cost reduction is given the greatest attention.

Reducing unit costs has puzzled commodity producers since time immemorial, but industrialists used a system approach to solving this problem only at the beginning of the 20th century. The term “Fordization” has become synonymous with comprehensive cost optimization. The goal was to reduce the cost of products as much as possible while maintaining acceptable quality. At the same time, economists carried out the first theoretical research in this area, which was later significantly developed.

Reducing production costs is facilitated or hindered by internal and external factors.

The first, internal, includes everything that enterprise management can influence: the creation of an optimal management system, the level of automation, technology, quality control methods, rationalization production processes etc.

At Henry Ford's factories, already in the 20-30s of the last century, a significant process was observed regarding the reduction of time costs, the organization of employee meals, the uninterrupted assembly line and other measures that helped increase profitability. At the same time, one of the most popular techniques among industrialists of that time - minimizing wages - was practically not used. In contrast, Ford's tariff rates were the highest in the United States.

The most important role in solving the problem of cost reduction is played by functional cost analysis (element-by-element economic analysis) is a separate field of applied science, pioneered by the American M. Miles and the Soviet scientist Yu. M. Sobolev.

External factors include circumstances beyond the control of the managers of an individual enterprise: state tax policy, changes in prices for raw materials, market conditions, fashion, tariffs of carriers and suppliers of necessary services, etc. External factors cannot be influenced, but they should certainly be taken into account when planning production, formation of assortment and other activities that help maximize profits.

The first place among internal factors for increasing profitability is the level of labor productivity.

It affects not only the cost directly, but also the rate of capital turnover. In the example already considered, the increase in profitability takes on a value greater than 100 percent, which means not only a double increase in the rate of profit, but also a reduction in the turnover period by half. In other words, if an employee during the same time, receiving the same fixed salary, produces large quantity

products, it will bring excess profits to the company. At the same time, variable costs (raw materials, energy, depreciation, etc.) will increase in proportion to production volume. and the constants will remain at approximately the same level. The second factor concerns automation and comprehensive mechanization of technological processes. Reducing influence human factor

reduces labor costs and, in some cases, improves product quality.

The third thing that every specialist pays attention to is all-round savings. Profitable means profitable. The process needs to be optimized in the direction of reducing the share of waste, reducing energy intensity and other costly items. The fourth internal factor is the optimization of partnerships and logistics. It's about on the purchase of raw materials lowest prices

, searching for the most profitable distributors. For example, reducing sales costs is an effective way to increase the profitability of a company's sales.

Finding ways to earn income from side activities. There are frequent cases of production enterprises providing non-commodity services (transport, service, etc.) Increasing the level of qualifications of employees. There are two polar opposite approaches to the application of this factor. Supporters of the “Ford” concept strive to organize production in such a way that almost any employee who has undergone simple instruction can begin to perform. An alternative concept involves the deep involvement of each worker in the process of material reproduction. Both strategies have a right to exist, but in the second case, it is necessary to take care of staff training.

Permanent monitoring of cost efficiency and relevance is also an important factor in increasing profitability. The relevance of expenses means identifying the dependence of the amount of expenses on certain management decisions.

The listed factors in most cases apply not only to the conditions of a manufacturing enterprise, but also when providing services.

Assessing the profitability of attracting investments

The overall profitability of an enterprise depends on how effectively it uses borrowed funds. The assessment of the benefits of external investments is facilitated by an indicator called the effect of financial leverage (EFF).

As befits a lever, it has two “shoulders”. One of them shows how much more expensive or cheaper borrowed capital is compared to the efficiency of the enterprise. The second link of the indicator demonstrates the ratio of own and borrowed funds. The leverage product is adjusted in accordance with the current bank rate.

The formula for calculating financial leverage looks like this:

Where:
EFR – indicator of the effect of financial leverage;
NS – current tax rate on profit, %;
ROA – overall profitability of the enterprise, %;
C – the rate at which borrowed funds (investments) are raised;
SK – amount of equity capital, rub.;
ZK – amount of borrowed capital, rub.

The effect of financial leverage characterizes, firstly, whether attracting investments is profitable, and secondly, how useful they are for increasing the profitability of the enterprise.

The corrective component, located at the very beginning of the formula, makes an adjustment to the tax payable to the budget.

The first “leverage” is called the differential and indicates the advisability of attracting third-party funds as such. If the difference (ROA - C) is negative, then the enterprise will be forced to pay investors dividends that exceed the amount of money earned with their help.

The second link of the lever demonstrates the ratio of equity and borrowed funds. The smaller it is, the larger share of the profit will have to be given to investors.