Profit in the economy is the ratio in terms of money to the cost of goods sold, expressed in monetary terms. We will talk about how it is analyzed, how it is formed, and how it is distributed in a market economy, in the article.
Accounting, normal and economic profit
There are three types of financial indicators. Accounting (accounting) profit in the economy is what is the difference in the price of goods sold and the cost of its production. Compensation of entrepreneurial activity is called normal profit, it is the cost of production. And the difference between normal and accounting profit is economic. Real profitability is determined by the main criterion - size, since profit in the economy is just the size of the enterprise’s income.
It arises on the condition that the total revenue not only covers, but also exceeds all internal and external costs. This includes normal profit in the form of interest on capital. The desire for greater benefits is an incentive for entrepreneurs to use resources as efficiently as possible, reduce costs, learn new technological advances, harness scientific potential, achieve technological progress and open new industries.
Under these conditions, the total amount of income from the listed types of activities, including the main ones, grows, since the profit in the economy is, first of all, the balance growth, which is the total amount of all available types of activity.
How businesses earn revenue
Profits from enterprises are obtained, of course, from the main production. Supporting activities bring only some part of them, which is formed after the performance of non-industrial services - transport, construction, from the work of auxiliary farms and enterprises selling products. In the same way, incomes (profits) are replenished by providing paid services to the population.
Non-operating activities exist in almost every enterprise, regardless of its size and significance. She also makes a profit.
The calculation of the difference is made between fines, fines, penalties, that is, the amounts paid and the amounts received: rent from the delivery of their own premises, operating revenues with containers and the like. This balance will be considered a profit from non-operating activities.
The financial result of the enterprise
The current conditions of the crisis, in which all enterprises of the country are placed without exception, have forced to mobilize all available domestic resources, which could, if not increase, at least maintain the existing profit at the same level. Calculation and planning of economic activities are now the main components of the successful functioning of the enterprise. A huge role in this is played by analysis, which determines the further course of the economic process. Including - competent identification of ways to use profits.
Profit and its value show all the weaknesses and strengths of the enterprise, and analysis of its activities helps to make the best managerial decision. For this, all economic processes and relations are scrupulously investigated. The financial result of the enterprise, as well as the analysis of ways to generate income, determines rational ways of structuring funds and their rational use. In the same way, the analysis of financial activity is a tool for forecasting both individual indicators and all economic profit as a whole.
Financial control
Through financial analysis, the movement of cash flows is monitored, the rationality of the use of profit is checked. Profit should be checked for compliance with standards and norms for the expenditure of material and financial resources, the appropriateness of costs.
Financial analysis has a certain information base - accounting reports. The results are operated by both internal users (managers and executives) and external ones - creditors, owners, buyers, suppliers, exchanges, consultants, lawyers and even the press.
Of particular importance is the distribution of enterprise profits, the study of key parameters, the preparation of an accurate and objective picture of its condition financially. Such control has its goals aimed at studying the methods of financial activity of the enterprise.
Goals
The main goal of the financial analysis is to obtain information on losses and income, structure, with all its changes in liabilities and assets, settlements with creditors and debtors, as well as the distribution of profits of the enterprise. The analyst or manager in this case is interested in both the current state and the projection in the near or distant future. These are the expected parameters of the financial condition.
Such goals can be achieved along with the solution of a whole set of certain interrelated tasks. Analytical tasks have to concretize all the organizational, informational, technical, methodological opportunities. Assessment of the financial activities of the company are always the results of the analysis of financial statements.
Deductive analysis method
The basic principle of analytical reading of reports is deductive - from general to particular - repeatedly applied in the course of analysis. This reproduces the logical and historical sequence of events and economic factors, reveals the orientation, calculates the components of profit and the strength of their influence on the overall results of operations.
Main methods
Six main methods for reading the reporting documentation can be distinguished from the many existing ones:
- Horizontal analysis. With it, each reporting position is compared with the previous period.
- Vertical. The structure is determined by the final financial indicators and the influence of each reporting position on the overall result is revealed.
- Trend analysis. Each position is compared with a number of previous ones, whereby a trend is determined - the main trend, the dynamics of this indicator, cleared of chance influences and personality in the characteristics of some periods. The trend forms quite possible future indicators, thus making a perspective forecast for production profit.
- Relative indicators and their analysis. This is a calculation of the interaction of individual report items or positions in different reporting forms that determine their relationship.
- The analysis is comparative, on-farm, where individual summary reporting indicators are studied for the entire company, for subsidiaries and units. In addition, the inter-farm indicators of this enterprise are compared with those of competitors. This is how profit is calculated in modern enterprises in a market economy.
- Factor analysis. The influence of individual factors on the result indicator is analyzed using stochastic or deterministic research methods. This type of reporting reading is direct when the effective indicator is split into its component parts, as well as synthesized (inverse), when individual report elements merge into a general performance indicator.
External financial analysis
Features of external financial analysis are as follows:
- its subjects are multiple, a large number of users are interested in information about the company's activities;
- the goals and interests of the subjects of analysis are diverse;
- there are standard methods, accounting and reporting standards;
- analysis focuses only on external, public reporting;
- its tasks are limited due to the previous factor;
- The results are open to users who want to get acquainted with information about the enterprise.
However, there may be undercurrents. If a financial analysis is based solely on financial statements and looks like an external one, conducted outside the enterprise by the hands of its interested counterparties, government agencies or owners, it still does not allow to reveal the secrets of the success of this company, since the content of the external analysis is made up of only certain factors. The components of profit and methods for their achievement usually remain outside the scope of the analytical material, only its financial result is known.
Content
The mentioned analysis is carried out in a certain way:
- The absolute indicators of profit are analyzed.
- The relative indicators of profitability are considered.
- It checks the financial condition, market stability, liquidity balance, solvency of the enterprise.
- The effectiveness of the use of loans is analyzed.
- The financial condition of the enterprise is diagnosed and issuers are rated by rating.
Internal financial analysis
The variety of economic information regarding the activities of enterprises is truly great, and there are also many ways to analyze it. The financial statements and the analysis performed on their basis are called the classical way. Internal economic analysis of finance is the main source of information, which is supplemented by other data from system accounting, data on industrial technical training, regulatory and planning information, etc.
The main value of this information in management optimization. For example, an analysis of the advance of capital and its effectiveness, the relationship of costs, profits and turnover is required. Internal management analysis goes deeper into production accounting data in order to conduct a comprehensive assessment of the economy and study all economic activity - whether its efficiency is high.
Features of management analysis:
- The results are oriented to their own leadership;
- all sources of information are used;
- cannot be regulated by;
- complete complexity in conducting, studying all the activities of the enterprise;
- accounting, analysis, planning and decision making are integrated;
- the results are as closed as possible to comply with trade secrets
Profit analysis
The company's financial results are reflected in a whole system of indicators that make up profit. Systematic consideration of them presents a certain difficulty, since most indicators characterize not only the financial result, but have many differences in purpose. The choice for the participants of the commodity exchange is made difficult, since the requirements for information related to the real state of the enterprise are often not satisfied. Administrations are primarily interested in the mass and structure of profits, as well as the factors that affected its size. The tax authorities want to get information, as reliable as possible, about the book profit, which includes the sale of products, income after the sale of property, and much more from the same series.
This means that the analysis of the components of profit in the economy is not an abstract, but a very specific analysis that helps to develop a strategy of behavior aimed at minimizing losses, financial risks and so on. Here, first of all, such elements of the enterprise’s activity are studied as changes in indicators - each for a given analyzed period — their structure and changes are studied, the dynamics of changes for a number of reporting periods is studied (naturally, in a generalized form).
The net profit remaining at the disposal of the enterprise — funds after all taxes and deductions are paid — is usually spent on the needs of the enterprise itself, and a detailed analysis is especially necessary here. This is the expansion of production, and the increase in spending on non-productive needs, and environmental protection, and training, and the creation of social funds.