The profitability of the enterprise is the main indicator of the effectiveness of its activities. Types of profitability and their purpose is to assess the effectiveness of the enterprise. These are relative indicators with which you can see the profitability of the enterprise relative to all the costs that are necessary to obtain this income. Indicators are most often expressed as a percentage.
The main types of profitability are conditionally divided into two large groups: return on sales and assets.
Profitability of sales - the ratio of the company's profit from sales to revenue received, excluding VAT. This calculation reflects gross profit margin. This indicator expresses the share of profit attributable to each ruble earned. This indicator, in fact, is an indicator of an enterprise’s pricing policy and reflects its ability to control costs.
The values of the indicator vary depending on competitive strategies, product lines. This indicator often evaluates the operational effectiveness of companies.
In addition to gross sales profitability, EBIT (profit from sales before taxes and interest per ruble of revenue), net profit and profitability from sales per ruble, which was invested in the production and sale of goods, are distinguished.
Types of return on assets include a lot of indicators. All of them are calculated as the ratio of profit to the average value of certain assets of the enterprise. In other words, each indicator of the profit and loss statement should be divided into the average value of the indicator of form No. 1 “Balance sheet”.
Types of profitability of the enterprise by assets are relative indicators characterizing the effectiveness of activities. They are calculated by dividing net profit for a certain period by the amount of assets for the same period. That is, these indicators show the ability of the assets of the enterprise to generate profit.
There are such types of return on assets as the profitability of products, production assets, capital investments, assets, borrowed capital, etc.
Product profitability is calculated by dividing the profit from product sales by the cost of the product. The rate of return on assets is calculated by dividing the profit by the average annual value of the assets. Return on capital investments - the ratio of profit from sales to the amount of capital investments. The profitability of fixed assets is an indicator of the ratio of net profit to the value of fixed assets.
To assess the profitability from the sale of products, it is necessary to calculate the indicator of retained earnings per ruble of sales. Profitability of sales is equal to the ratio of retained earnings to sales.
Profitability can be calculated without taxes. In this case, net profit will be equal to retained earnings, net of income tax. Revenue equals net profit of sales.
Profitability of products depends on factors such as price and cost.
Product profitability equals the ratio of the difference in prices and production costs to sales prices. This indicator needs to be analyzed over a number of years, taking into account the dynamics of changes in prices and cost.
The profitability of production assets equals the ratio of retained earnings to the average annual cost of fixed assets in the amount of material costs. These types of profitability are analyzed and measured on the balance sheet and net profit. The change in these indicators is influenced by the turnover of working capital, capital productivity, sales volume.
There is an indicator of personnel profitability - the so-called ratio of net profit to the number of (average) personnel.