Creating a formula for calculating economic efficiency could significantly make life easier for enterprises. In order to increase profits, each company tries to improve product quality and increase its income or invest money in the production process in order to reduce costs.
Types of efficiency
Efficiency is divided into two categories. The first is economic. The second is socio-economic.
With economic efficiency, the criterion is the company's ability to maximize the amount of profit it receives. The criterion of socio-economic efficiency is the level of satisfaction of the interests and needs of the population.
Classic performance calculation
The general formula for calculating economic efficiency is as follows:
EkEf = R / W , where
EkEf - economic efficiency;
P is the result obtained from investing;
C - the costs incurred to achieve the result.
This formula can be used to calculate the economic efficiency of measures whose duration is designed for a short period of time. In another case, this indicator is not able to reflect the feasibility of investments, since in the long term additional variables appear that are not included in the above formula.
Absolute efficiency
There is also a formula that displays absolute effectiveness. It has the following form:
EE abs = (Ef 1 - Ef 0 ) / (I + K * K n ) , where
EE abs - economic efficiency;
Eph 1 is the overall result after the events;
Eph 0 - result before the event;
And - total costs;
K - investment for events;
To n - regulatory coefficient.
Normative coefficient
This index shows what may be the minimum acceptable efficiency in a particular area. The parameter is the same for all activities of a certain industry, but may vary depending on the sphere.
The coefficient value is in the range from 10 to 33 percent. In the field of trade, this indicator is 25%, in the industrial sector - 16%.
Efficiency of using factors of production
Any enterprise has manpower, fixed and circulating means of production. Without them, the production process is unrealistic. Companies are also trying to improve their investment performance to improve performance.
To calculate the effectiveness of each of these factors, their own methods are used. Some of them are based on the same principles.
Staff efficiency
In order to measure how effectively the company uses its workers, two parameters are used. The first is development. The second indicator is the complexity. Production is calculated as the ratio of the quantity of goods produced to the costs of personnel:
B = O / W , where
B - production;
- the volume of products manufactured at the enterprise;
- costs incurred by the enterprise for labor resources.
The labor intensity indicator is the opposite of the previous indicator and displays how much money you need to spend on the personnel of the enterprise in order to produce one unit of production.
T = 3 / O = B -1 = 1 / B , where
T is the complexity;
B - production;
- the volume of products manufactured at the enterprise;
- costs incurred by the enterprise for labor resources.
The formula for calculating economic efficiency for the company's labor resources can be displayed as follows:
EE mp = ((O 1 * Ts - Z 1 ) - (O 0 * Ts - Z 0 )) / And , where
EE tr - economic efficiency for labor resources;
O 1 - the volume of production after investment in staff;
C is the price of the product;
Z 1 - the cost of production after the event;
0 - the volume of sales before investment in labor resources;
0 - costs of production before events.
Fixed assets (PF)
There are two main parameters for calculating the efficiency of using OF: capital productivity and capital intensity. Capital productivity is calculated as the ratio of the value of all products that have been produced by the enterprise during one year to the average annual value of the funds.
= VP / S s.g. where
VP - all the company's products in monetary terms (including the cost of semi-finished products and work in progress);
F about - capital productivity;
Since this year - the cost of PF per 1 year on average.
The ratio of capital intensity is the inverse to the return of fixed assets. The coefficient value can be determined using several formulas.
= ( ) -1 = 1 / , where
F e - capital intensity;
F about - return on assets.
In the event that the return on fixed assets (OS) is not found, capital intensity can be determined as follows:
= ( .. / ) , where
F e - capital intensity;
VP - the value of gross output in monetary terms;
Since this year - the average annual value of fixed assets.
All companies are trying to reduce capital intensity and increase capital productivity. An example of a formula for calculating the economic efficiency of investments in fixed assets is presented below:
EE of = (( 1 * 1 - 1 ) - ( 0 * 0 - 0 )) / And , where
EE of - economic efficiency for fixed assets;
O 1 - the volume of manufactured products after investment in fixed assets;
C 1 - the price of products after investing;
C 2 - the price of products before investing in fixed assets;
Z 1 - the cost of production after the event;
About 0 - the volume of sales before investment in fixed assets;
0 - costs of production before events.
Current assets (About S.)
To determine the effectiveness of the use of working capital of the enterprise, three indicators are used:
- turnover ratio;
- turnover period;
- load factor FROM.
Turnover ratio C. It is thus that the return on assets for the OS. It is calculated by the formula:
To about = RP / S obs , where
To about - turnover ratio;
RP - goods sold by the company in monetary terms;
With obs - the average amount of the remainder of Ob. FROM.
The load factor is the inverse of the turnover ratio:
To s = (To about ) -1 = 1 / To about = With obs / RP , where
To s - load factor;
To about - turnover ratio;
RP - goods sold by the company in monetary terms;
With obs - the average amount of the remainder of Ob. FROM.
The turnover period is the number of days that is necessary for working capital to make one full revolution, calculated as follows:
T about = D / K about = D * C obs / RP , where
T about - turnaround time;
D - the number of days of the analyzed period;
To about - turnover ratio;
RP - goods sold by the company in monetary terms;
With obs - the average amount of the remainder of Ob. FROM.
The formula for calculating the economic efficiency of the proposed measures to improve the use of working capital is based not so much on additional profit as on cost reduction.
EE obs = E y / And , where
EE obs - economic efficiency of working capital;
E y - conditional working capital savings;
And - the size of the attachments.
Economic effect
Formulas for calculating economic efficiency and economic effect are widely used among companies that make short-term cash injections to improve certain aspects of their activities. The formula for calculating it is as follows:
Ef = D - I * K , where
Ef - economic effect;
D - income or savings from events;
And - the costs of events;
To n - regulatory coefficient.
Ad performance
Advertising is a set of marketing tools, the purpose of which is to disseminate information about goods, services, people, companies, as well as to attract customers. The formula for calculating the cost-effectiveness of advertising displays the result obtained after the advertising campaign. The formula for determining the coefficient is as follows:
EE p = (VD 1 - VD 0 ) / And, where
EE p - cost-effectiveness of advertising;
VD 1 - gross income after the creation of advertising;
VD 0 - gross income before advertising;
And - advertising costs.
When calculating the effectiveness of using advertising media, it is very difficult to determine how much the gross income of the enterprise has grown precisely because of advertising. There is no guarantee that the company's revenue would not increase if the company did not advertise itself or its goods. Despite this, the cost-effectiveness of advertising is still considered.
Cost-effectiveness of the company
The main indicator in the company's work is net profit, part of the revenue that remains after all costs are deducted and all taxes are paid. There is no point in increasing revenue if costs increase at the same or even faster pace.
Thus, the classical calculation of economic efficiency cannot always reflect how the proposed activities will ultimately affect the final result. This is due to the fact that it is calculated as the ratio of the result to the costs only to achieve it. In cases where the result is gross income, the indicator of economic efficiency is not accurate, since it does not take into account a possible increase in production costs.
The formula for calculating the economic efficiency of an enterprise can be expressed as follows:
EE p = (PE 1 - PE 0 ) / And , where
EE p - the economic efficiency of the enterprise;
PE 1 - net profit after investment;
BH 0 - net profit before investment.
Long-term investment project
All the above methods of calculating the effectiveness can be applied only for short-term events (up to one year). In the long run, the calculation formula does not take into account discount factors, which make it possible to calculate the feasibility of ownership taking into account alternative incomes.
As such, the formula for calculating the economic efficiency of the project, which is designed for a long term, does not exist. The feasibility of the investment is calculated on the basis of the net present value, as well as the payback period, which displays how much time is needed for the investment project to fully pay off and start making a profit.
Net present value is calculated as the sum of all payments and investment income, taking into account discount factors for each period. The formula of the TTS can be represented as follows:
TTS = (CF / (1 + p) 1 ) + (CF / (1 + p) 2 ) + (CF / (1 + p) 3 ) + ... + (CF / (1 + p) n ), where
TTS - net present value;
CF - stream of payments (the difference between income and expenses);
p is the calculation percentage;
n is the term of the investment project.
This parameter shows how efficiently the investment funds are used. If the size of the NTS is higher or equal to zero, this means that it is advisable to carry out an investment project. In the case when the net present value is negative, the internal interest calculation should be carried out to see how much the money paid off.