The definition of "profitability" is an indicator of economic efficiency or utility. Simply put, this concept characterizes the level of profitability, as well as the effectiveness of the use of various resources, for example, labor, material or monetary. In addition, the definition of profitability of the enterprise is expressed by the degree of rationality of the use of land wealth. Thus, the calculation of the presented coefficient is carried out as the ratio of profit to existing assets, flows or resources. A similar coefficient can be expressed in profit per unit or in profit contained in each unit received.
The definition of profitability is a percentage. It should also be noted that this concept is least dependent on the inflation rate, however , it has a fairly tight interaction with the amount of profit.
The determination of the profit and profitability of each individual enterprise can be carried out using the analysis of estimated indicators, such as return on assets, current assets, fixed assets, return on investment and equity, as well as return on total investments. Let's consider some of these indicators in more detail.
Return on equity
This indicator plays a special role in financial analysis. A similar characteristic is expressed by the following formula: the profit received after various deductions to social funds, as well as taxes, is divided by the available equity. Moreover, the definition of “return on equity” shows the amount of profit in relation to funds invested by shareholders.
Return on assets
It shows the ratio of profit after deductions to the average value of assets. Profitability of this kind is a characteristic of the profit that an organization receives from one ruble invested in the process of generating assets. In other words, this indicator expresses the degree of profitability of the enterprise for a single period.
Profitability of fixed assets (OPF)This indicator is expressed as the ratio of net profit to the average cost of OPF. Like the other indicators presented, the obtained value must be multiplied by 100%, since, as mentioned earlier, each of the indicators of profitability is relative.
Return on current assets
As in all previous ratios, this indicator is the ratio of net profit to current assets.
Return on Investment Definition
It includes the efficiency and rationality of the use of funds contributed to the development and promotion of the organization. This indicator can be found by the following formula: the total amount of profit is divided by the balance sheet total, from which the value of the amount aimed at paying off short-term liabilities was previously deducted.