The calculation of the profitability of the enterprise is done either on the basis of preliminary indicators (estimated), or at a working enterprise where income has already been received and the results of the calculation period have been summed up.
Profitability indicators
Return on working capital is the definition of profitability or loss-making of an enterprise. This indicator is relative, determining what the level of business profitability is. The higher the profitability ratio after the calculations, the greater the profitability of the business. Profitability can be determined, as a whole for the entire volume of production, services, and for a part of the invested money, for example, profitability production, commercial or investment. Value of profitability - this indicator determines how effective the business is in terms of the ratio of cash and consumed resources.
The profitability indicator, as a general assessment of the effectiveness of invested funds, is calculated by the formula:
R CuI = P / R CuI
where R CuI - an indicator of the profitability of certain funds and sources. P - profit (net or profit on the balance sheet).
Profitability is general for the whole production.
R total = PDN / Real.
where PDN is gross profit, B is revenue from sales of products (or sales).
Profitability can be calculated, both for all indicators of invested funds, and for its individual components.
1. Indicators by which the payback of production costs and projects in which investments are made is visible.
2. Return on sales.
3. The profitability of part or all of the capital.
1. R = Prp / Zrp
2. R = ChPrp / Zrp
3. R = VHF / Zrp
1. Return on equity of the enterprise. Profit from the sale of products is divided into costs.
2. Net profit and profit from the main activity is divided into costs - to calculate the profitability of sales.
3. PPP - net cash flow (the amount of net profit and depreciation for the reporting period) is divided by the amount of expenses spent on the sale of products.
Return on working capital shows how quickly it can “turn around” in the market for the production of goods or the provision of services. That is, how many times you can return the money invested in the business in order to put it into business again. What amount of them can be spent without prejudice to fixed capital for the purchase of a new batch of goods or raw materials for production.
Return on working capital reveals how net profit (after tax) relates to the working capital of the enterprise.
R OBA = PE / OA PE is the net profit, OA is the average annual price (value) of working capital.
You can use the coefficient for calculating the current asset turnover. In this case, the sales proceeds are divided by the average value of current assets for the given reporting period.
Next, you should analyze business performance using a derived indicator: turnover stage (days) = number of days / current assets turnover ratio .
Return on working capital is sometimes difficult to calculate due to the difficulty of allocating and delimiting funds used in core and other activities. Therefore, it will be more appropriate to calculate the total value of current assets, determining the overall profitability.
P total OA = (Sales + Other / OA) X 100%
where OA in the denominator is the total component of current assets.
Extended formula:
R total OA = (N sales - (S pr + KR + SD) + Other) / OA
Where
N sales - Sales revenue.
S ol - Production cost.
KR - Selling expenses.
UR - Management expenses.
OA - The total value of current assets.
Analysis of all indicators over the course of the enterprise’s work during the six months (or years) will show how effective the profitability of production capital is and which of the indicators should be adjusted to increase its profitability and turnover.