Each enterprise existing in the market is unique. One indicator of this is the fact that all organizations are to varying degrees effective, and even if they receive the same profit, this does not mean that they are equally effective and profitable. This can be judged more objectively based on an analysis of profitability, that is, the relative level of profitability. Agree, with the same profit margins, the profitability of freight transportation will most likely differ from the profitability of some commercial or industrial enterprise.
The profitability of the enterprise can not be determined using any one indicator. The organization’s activities are very diverse, therefore, there are a lot of indicators for evaluating its effectiveness. However, the activity of any company is associated with the implementation of costs for the production of the product (or for the provision of services, performance of work, but this does not change the essence). In this regard, it will be logical to dwell in more detail on the indicator characterizing cost-effectiveness.
In general, profitability indicators are calculated by the ratio of the amount of profit received to the value of the profitability of which is determined. Thus, cost-effectiveness is determined by dividing revenue by costs, which will be represented by the cost of production. Despite such a simple description, the calculation of this indicator may cause some difficulties. The fact is that both profit and cost can be determined in different ways, and for accurate calculation it is necessary to make the right choice.
Let's look at what indicators are included in the profitability of costs incurred in manufacturing products, as well as their subsequent implementation. Most often, profitability is measured by the net profit indicator, but in this case its use will most likely be a mistake. This is due to the fact that net profit is subject to changes under the influence of the activities of the company, which is not associated with the production and sale of products. Thus, the indicator of profit from sales is more suitable.
As for the cost price, here, too, is not so simple. If we want to determine the cost- effectiveness of both production and sales, we must include in the calculation such a cost that takes into account not only production costs, but also other costs associated with the sale. In this regard, the indicator of production costs cannot be used, but the indicator of total cost will do just fine.
So, collecting the indicator together, we get that the cost-effectiveness of the sold products is determined through the ratio of the indicator of profit from sales to the indicator of the total cost of production that was sold. But what is the economic meaning of the calculated value? It is obvious and consists in how much profit can be made from each ruble, which forms the cost of production and sale of products, services or work. What is noteworthy, this indicator describes not only the efficiency of production, but also the effectiveness of marketing activities. This is its value.
None of the indicators of profitability is not limited to any regulatory values. The reasons for this are understandable, since all enterprises are different, and a very high profitability for one of them can be a critical level for the other. Based on this, the analysis of profitability is most often carried out by studying the changes in indicators over time, that is, their dynamics and trends are determined. In addition, comparisons are often used with similar enterprises and with indicators specific to the industry as a whole.