Every enterprise is created for any purpose. As a rule, this goal is to obtain a certain effect. The effect may be social, environmental, or some other, but most often it is expected to obtain an economic effect. In this case, it is understood as the profit that entrepreneurial activity should bring . If this effect is present, then the company can be called profitable, but different organizations for a number of reasons generate profit of different sizes. In order to compare them with each other, as well as to study one company from the point of view of profitability in dynamics, they calculate the profitability indicators that characterize the relative level of profit.
The structure of all indicators of profitability is the same: in the numerator is a certain type of profit, and in the denominator is something whose profitability is determined. Typically, the profitability of any resources is calculated, which allows us to assess the degree of effectiveness of their use. The final result of the calculations can be presented both as a percentage and as a coefficient. Consider, as an example, several indicators that are most often determined.
The profit of the enterprise is created in the course of carrying out activities for which one or another property owned is used. It, as you know, is reflected in the asset of the balance sheet. The return on assets ratio is determined by the ratio of profit to balance sheet currency. In calculations, either net profit or profit from sales can be used. In addition, it makes sense to evaluate the effectiveness of each of the large groups of property reflected in the balance sheet - current and non-current assets. Profitability ratios in this case will show the amount of profit per unit of property value.
Regardless of whether the company produces products or provides services, it carries out costs. Obviously, they must also be produced most efficiently. In order to assess the level of efficiency, the profitability ratio of the main activity is calculated. It also has another name, which more clearly reflects its meaning - cost-effectiveness ratio . The calculation is extremely simple and consists of the ratio of profit to the sum of the costs of production. Of course, if the information is limited, then the net profit can be used in the calculations, but the calculation based on the profit from sales will be more correct. The fact is that this type of profit was obtained precisely from the sale of the products for the creation of which the costs were made.
The profit indicator is more worried about the owner of the enterprise. In this regard, it makes sense to calculate such an indicator as return on equity. When dividing the net profit by the amount of equity, you can determine the amount of profit that each ruble invested in the company by the owner brings. Based on this indicator, it is possible to compare different enterprises precisely from the point of view of the owner, for example, in order to assess investment prospects.
Not a single profitability coefficient is limited by any normative values, therefore, their comparison is most often carried out in dynamics, that is, they analyze the change over several years and determine the trends. In addition, you can compare the performance of the enterprise with similar indicators of similar firms or with industry average values.
Definition of changes in profitability is sometimes not enough, and you may need to identify their causes. For this, factor analysis based on the DuPont methodology is most often used. Using this method, the isolated and cumulative effect of various factors is studied, for example, on the return on assets or equity.