The profitability indicator for any type of production is generalizing and showing its economic efficiency. Indeed, a sufficient level of profitability indicates the level of profitability of the enterprise, its profitability. In this regard, improving the profitability of the enterprise is a key area of activity to optimize costs and increase revenue.
How is profitability calculated ? The calculation of profitability is carried out by comparing the volume of gross income or profit of the enterprise with the costs incurred for production or the amount of resources used. After analyzing the average level of profitability, you can establish which products and which departments of the enterprise give the necessary level of profitability, and which are unprofitable. This information in a competitive market economy is very important, because financial indicators directly depend on the concentration and specialization of production.
Improving the profitability of the enterprise in a situation of increased competition is a paramount task.
As you know, the main source of free cash of the enterprise is the proceeds from the sale of manufactured products. In this regard, the key activity of the subject is to increase the profitability of production by reducing costs and observing the economy, as well as the effective use of resources available to the enterprise.
After all, these costs determine the level of income and cost structure. The cost of raw materials occupies a significant share, and therefore, increasing the profitability of the enterprise and reducing the cost of manufactured products will significantly affect the increase in profit. Thanks to this, it is possible to get an increase in profit, which will affect the break-even indicator of the organization. In addition to reducing the cost of production of goods, increasing profitability of sales also significantly affects the increase in the number of products sold. In order to increase sales, in addition to marketing activities, such products should be produced that meet the requirements of consumers and will be in stable demand.
At each enterprise, on an ongoing basis, there must be responsible units that carry out an analysis of the cost of production, as well as implement a full-scale program to reduce it. It should be comprehensive in nature, take into account all possible factors that affect the formation of production costs and sales.
A positive effect on increasing the profitability of the enterprise is provided by measures aimed at optimizing the used working time.
These include:
- maintaining the optimal number of workers;
- reduction of costs for units that are related and do not participate in production;
- Continuous work to improve the skills of workers, whereby labor productivity will improve, ahead of the average wage;
- the use of progressive payment systems, increasing the interest of workers in improving productivity;
- automation of production processes, which reduces the cost of the wage fund;
- increase labor motivation.
Reducing the size of the overhead costs of operating and managing the production process is also significant. This is facilitated by an increase in production volumes due to the implementation of reconstruction, technical upgrade of the enterprise, reduction in the size of the administrative and managerial staff and support services, as well as through improved production management.