Net profit is such an indicator of the effectiveness of the company, which, on the one hand, is influenced by the largest number of factors compared to other types of profit, and on the other, it is the most accurate and “honest” indicator. It is for these reasons that this quantity requires close attention and should be subjected to detailed study. One of the most popular and frequently used methods is the factor analysis of net profit. As the name implies, the study of profit in this way involves the determination of those factors that affect it to the greatest extent, as well as the determination of the specific magnitude of this impact.
Before considering the factor analysis of net profit, it is necessary to study how it is formed. Analysis of the formation of net profit is carried out on the income statement. This is understandable, since this particular reporting form reflects the order in which the financial result of the functioning of the company is being formed. When studying the formation of profit it is useful to conduct a vertical analysis of this reporting form. It implies finding the specific weight of each of the indicators included in the report, as well as a subsequent study of its dynamics. As a rule, revenue, which is considered equal to one hundred percent, is selected as the base for comparison.
Factor analysis of net profit is also advisable to carry out the income statement. This is due to the fact that this form of reporting makes it easy and simple to draw up a mathematical model that will include factors affecting the amount of profit. The factors that have the greatest influence should be placed in the model in front of factors whose influence is less significant. The profit and loss statement reflects the amount of revenue, but does not allow to judge its changes under the influence of price and sales volume. These factors are extremely important, therefore they need to be additionally taken into account in the model, dividing the effect on revenue of revenue into two relevant parts. After drawing up the mathematical model, it is necessary to directly analyze it according to a certain technique. Most often resort to the use of the method of chain substitutions or its modifications, for example, the method of absolute differences. This choice is due to the ease of use and accuracy of the results.
After studying the formation process and dynamics, it is necessary to analyze the use of net profit. It would be more logical and easiest to study this process by conducting a vertical analysis, which was already mentioned above. Obviously, in this case, net profit must be taken as the basis. Then you need to determine the shares of each direction of spending this profit: on dividends, in reserve funds, on investments and so on. Naturally, it is necessary to study the change in this structure in dynamics.
Obviously, for any of the types of analysis described above, information is needed for several periods, at least for two years. This is due to the fact that on the basis of one period it is simply impossible to draw any conclusions about these or those changes. However, it should be borne in mind that the indicators should be comparable, it is necessary to make amendments in case of changes in accounting policies or any other.
Whether it is a factor analysis of net profit or some other, it must necessarily end with the formulation of certain conclusions and recommendations. Based on the study of profit, one can draw many conclusions about pricing policy, cost management, and much more. Conclusions and recommendations represent the basis for making managerial decisions that are vital to the activities of the company.