The analysis of profitability and efficiency of the enterprises

The analysis of profitability and efficiency of the enterprises

 INTRODUCTION

  1. THE THEORETICAL BASES OF THE PROFITABILITY AND EFFICIENCY OF THE ENTERPRISES
    • Economic content and types of profitability and efficiency
    • Methods of profitability and efficiency analysis of the enterprise
    • Factors influencing the enterprise’s profitability and the ways to improve the efficiency of the enterprise
  2. CALCULATING OF PROFOTABILITY OF THE ENTERPRISE
    • Calculating  the profitability of the enterprise
    • Analysis of profitability of the enterprise

CONCLUSION

REFERENSES

INTRODUCTION

In the economic analysis, the performance of enterprises can be estimated by such indicators as output volume, sales volume, profit. Profit is an excess of revenues over associated expenses for an activity over a period of time. Terms with similar meanings include ‘earnings’, ‘income’, and ‘margin’. Lord Keynes remarked that ‘Profit is the engine that drives the business enterprise’. Every business should earn sufficient profits to survive and grow over a long period of time. It is the index to the economic progress, improved national income and rising standard of living. No doubt, profit is the legitimate object, but it should not be over emphasized. Management should try to maximize its profit keeping in mind the welfare of the society. Thus, profit is not just the reward to owners but it is also related with the interest of other segments of the society. Profit is the yardstick for judging not just the economic, but the managerial efficiency and social objectives also.                                                                                                                  It should be noted that profitability indicators are important elements that reflect the factor environment for profit formation of enterprises. Therefore, they are mandatory in conducting comparative analysis and assessing the financial condition of the enterprise.                                                                                   In addition, profitability indicators are used in analyzing the effectiveness of enterprise management, in determining the long-term well-being of the organization, used as an instrument of investment policy and pricing.                            Thus, profitability is one of the main criteria for assessing the efficiency of the enterprise, increasing profitability characterizes the purpose of any enterprise in the market economy, increasing profitability contributes to the financial stability of the enterprise, for entrepreneurs, the profitability indicator characterizes the attractiveness of business in this area.

All of the above has determined the actuality of the research topic. The aim of our research is to analyze the profitability and efficiency of the enterprise.  To achieve this goal it is necessary to solve the following tasks:

  • to define the concept of profitability and to reveal its significance for financial analysis
  • to identify the forms of profitability and efficiency
  • to describe the methods of profitability analysis
  • test how to calculate the profitability of the enterprise
  • to analyze the profitability and efficiency of the enterprise
  1. THE THEORETICAL BASES OF THE PROFITABILITY AND EFFICIENCY ANALYSIS
    • Economic content and types of profitability and efficiency

Profitability means ability to make profit from all the business activities of an organization, company, firm, or an enterprise. It shows how efficiently the management can make profit by using all the resources available in the market. According to Harward & Upton, “profitability is the ‘the ability of a given investment to earn a return from its use.” However, the term ‘Profitability’ is not synonymous to the term ‘Efficiency’ [12].                                                      Profitability is an index of efficiency; and is regarded as a measure of efficiency and management guide to greater efficiency. Though, profitability is an important yardstick for measuring the efficiency, the extent of profitability cannot be taken as a final proof of efficiency. Sometimes satisfactory profits can mark inefficiency and conversely, a proper degree of efficiency can be accompanied by an absence of profit.                                                                                       The net profit figure simply reveals a satisfactory balance between the values receive and value given. The change in operational efficiency is merely one of the factors on which profitability of an enterprise largely depends. Moreover, there are many other factors besides efficiency, which affect the profitability. But at the present stage, profit is the key indicator of the effectiveness of the enterprise.

Profit as the final financial result of the activities of organizations is the difference between the total amount of income and the costs of production and sales of products, taking into account the losses from various business transactions. Thus, profit is formed as a result of the interaction of many components with both positive and negative signs [1].

The absolute amount of profit does not allow you to judge the degree of profitability of an organization. To assess the effectiveness of organizations is not enough to use the profit measure, because the availability of profit does not mean that the organization is working well. Many organizations that received the same amount of profit, have different sales volumes, different costs. Therefore, to determine the effectiveness of the costs incurred, it is necessary to use a relative indicator — the level of profitability.

In economic theory, several definitions of profitability categories are used [2]:

1) profitability,

2) the ratio of the useful result of trading activity in the form of profit to the value of the aggregate costs of obtaining it,

3) comparison of the results of economic activities with costs or resources,

4) an integrated indicator that generalizes other performance indicators.

In any definition, profitability will mean the percentage of the amount of the received (expected) profit to one of the indicators: the volume of turnover, the costs of sales, the average value of fixed and working capital.

Increasing the level of profitability for the work team of the organization means strengthening the financial situation, and, consequently, increasing the funds allocated to material incentives for their work, for managers it is information about the results of the tactics and strategy used about the appropriateness of its adjustment [5].

The main indicators of profitability can be combined into the following groups [3] :

  • indicators calculated on the basis of the value of the products sold;
  • indicators calculated on the basis of production assets;
  • indicators calculated on the basis of cash flow.

The main source of cash accumulation of enterprises and organizations is the proceeds from the sale of products, namely the part that remains after deduction of material, labor and money costs for the production and sale of these products. Therefore, an important task of each business entity is to get more profit at the lowest cost by observing a strict regime of savings in spending and the most effective use of funds [5].

Formation of profit should be carried out in such a way that all the company’s expenses are covered in sufficient amount, there are no problems with deductions to the budget and off-budget funds, and there always remained unused profit.

In the practice of the enterprise, the following indicators are calculated, characterizing the volume of profit received:

— taxable profit;

— net profit of the enterprise;

— net profit remaining at the disposal of the enterprise (Fig. 1).

It is also necessary to take into account the unequal importance of this or that indicator of profit for different categories of interested persons. For the owners of the enterprise, the final financial result is important — the net profit that they can withdraw in the form of dividends or reinvest with the purpose of expanding the scope of activities and strengthening their market positions. For creditors, the amount of net profit that remains to the owner is not of interest. They are more interested in the total amount of profit before interest and taxes, because from it they receive their share for loaned capital. The state is interested in profit after paying interest before tax, because it is the source of the receipt of money in the budget. Therefore, it is desirable that the internal and external financial statements provide information on financial results in this context.

The amount of profit received after the payment of income tax is called net profit.

From the net profit the enterprise makes payments on the borrowed capital (payment of credits), carries out payments for excessive emissions of polluting substances into the environment. The difference between net profit and the specified mandatory payments is the net profit remaining at the disposal of the enterprise [3].

So, profit as the main form of cash savings is the difference between revenue from sales at appropriate prices and full cost. Hence, profit growth depends, first of all, on the reduction of costs for production, as well as on the increase in the volume of products sold.

  • Methods of profitability and efficiency analysis of the enterprise

The main indicator of the financial impact of the enterprise is profit. It identifies the main goal of entrepreneurship. In the current economic conditions profit is considered to be the major factor of activity of any entity that affects the possibility of funding many programs the company associates with the expansion of capacity, product quality improvement, strengthening competitiveness and gaining new segments of the market environment.                                                               The problems in the theory, methodology for determining revenue and profitability estimation in market conditions are researched by known foreign and domestic scientists: Y. Brigham, P. Havraneko, I. Blank, M. Herasymchuk, A. Gojko, V. Grenyova, V. Metz, S. Sidnev, V. Vitlinskiy, V. Savchuk etc.                       Exploring the importance of profit for the company, which operates in the market, I. Blank emphasized, in particular, that profit of an enterprise is the primary goal of business activities, the performance criterion of a particular production (operating) activities, internal sources of financial resources to ensure its development, the main source of growth in the market value of the company and the primary protective mechanism against bankruptcy [7].                                   The priority directions of measures development to ensure the profitability include: diagnostic tool performance, profitability factor analysis, cluster analysis to study the financial performance of enterprises, technology evaluation performance indicators, economic modeling profit management, relationship between profitability indicators and financial security enterprise [18].                            For effective revenue management it is necessary to have sufficient information base for making optimal management decisions. They are the following: profit analysis, income and expenses. The source of input data for this analysis serves as the annual financial statements of the company and market research [8].                                                                                                        There are many methods for analyzing profitability, but the main ones can be represented by the scheme, which is shown in Fig. 2.

Figure 1. Methods of profitability analysis

To assess the overall effectiveness of business enterprises it is necessary to define the cost of effectiveness. Analysis of the profitability provides an assessment of profitability, determination of dynamics, causes and factors that influence its change, and the extent of their impact on the change [16]. The final step is to develop a cost-benefit analysis of measures to mobilize the reserves to increase profitability.

Economic efficiency is measured by two types of indicators: one characterizes the results of production per capita, the other — the ratio of results and costs.

Performance indicators, comparing the results of production with its costs, are:

  • The productivity of social labor is the ratio of the national income to the number of workers in material production or to the working time spent in material production. This indicator expresses the volume of the national income, which is created on the average by one worker of material production; or on average per unit of working time in material production.

In addition to the productivity of social labor, labor productivity indicators are calculated in the main sectors of the economy: industry, agriculture, construction, transport.

  • The material intensity of the national income is the ratio of material costs to national income. Sometimes more specific indicators are calculated: metal consumption, energy intensity and others. The material intensity can also be considered by gross national product (instead of national income). It characterizes the level of expenditure of labor items per unit of final output.
  • Capital productivity — the ratio of national income (or GNP) to the value of productive assets. It shows the output of the final output from a unit of production assets. Sometimes, instead of capital productivity, an indicator of the capital intensity, which is the reciprocal of the return on assets, can be used.

 

  • Factors influencing the enterprise’s profitability and the ways to improve the efficiency of the enterprise

The high role of profits in the development of the enterprise and ensuring the interests of its owners and personnel determine the need for efficient and continuous management of profits. Profit management is the process of developing and making managerial decisions on all the main aspects of its formation, distribution, use and planning in the enterprise [4] .

Ensuring effective management of the company’s profit determines a number of requirements for this process, the main of which are:

  1. Integration with the overall system of enterprise management. Profit management is directly related to the production management of personnel, investment management, financial management and some other kinds of functional management.
  2. The complex nature of the formation of management decisions. All management decisions in the field of the formation and use of profit are closely interrelated and have a direct or indirect effect on the final results of profit management. In some cases, this impact can be contradictory. For example, the implementation of highly profitable financial investments can cause a shortage of financial resources that ensure production activity, and as a result — significantly reduce the size of operating profit. Therefore, profit management should be viewed as a complex system of actions that ensures the development of interdependent management decisions, each of which contributes to the effectiveness of the formation and use of profits for the enterprise as a whole.
  3. High dynamism of management. Even the most effective management decisions in the field of formation and use of profit, developed and implemented at the enterprise in the previous period, can’t always be re-used in the subsequent stages of its activities. First of all, this is due to the high dynamics of environmental factors at the stage of transition to a market economy, and, first of all, with a change in the commodity and financial markets.
  4. Multivariate approaches to the development of individual management decisions. Realization of this requirement assumes that the preparation of each managerial decision in the field of the formation, distribution and use of profit must take into account the alternative possibilities of action. If there are alternative projects of management decisions, their choice for implementation should be based on a system of criteria that determine the policy of managing the company’s profit. The system of such criteria is established by the enterprise itself.
  5. Orientation to the strategic objectives of enterprise development. No matter how profitable these projects of managerial decisions seem to be in the current period, they should be rejected if they conflict with the mission (the main goal of the activity) of the enterprise, its strategic directions, undermine the economic basis for the formation of high profit margins in the forthcoming period.

The main goal of profit management is to maximize the welfare of the owners of the enterprise in the current and prospective period. This main goal is designed to simultaneously harmonize the interests of owners with the interests of the state and the personnel of the enterprise. Proceeding from this main goal, it is possible to formulate a system of basic tasks aimed at realizing the main goal of profit management.

Table 1.

Tasks of profit management of the enterprise and ways of their realization

Tasks Methods of their implementation
1 2
Provision of maximization of the size of the formed profit, corresponding to the resource potential of the enterprise and market conditions Optimization of enterprise resources and provision of  their effective use
Provision of optimal proportionality between the level of generated profit and the acceptable level of risk An acceptable level is formed, which determines the policy of implementing certain types of enterprise activities
High quality assurance  of generated profit Expansion of the output volume and development of new promising types of its real investment, providing the basis for the long-term development of the enterprise
Payment provision of the required level of income for the invested capital to the owners of the enterprise The level with a successful operation of the enterprise should be not lower than the average rate of return on the capital market
Provision of the formation of sufficient financial resources at the expense of profit in accordance with the objectives of enterprise development Creation of production development funds, reserve and other special funds, ensuring the forthcoming development of the enterprise
Provision of  continuous increase of the market-value of the enterprise The definition of a system of criteria for optimizing the distribution of profits on the capitalized and consumed part of it
Ensuring the effectiveness of staff participation in profit programs Development of staff participation in profit programs designed to harmonize the interests of the owners of the enterprise and its employees

 

All considered profit management problems are closely interrelated, although some of them are multidirectional. Therefore, in the process of profit management, individual tasks should be optimized among themselves. An effective mechanism for managing the profit of an enterprise makes it possible to fully realize the goals and tasks facing it, contributes to the effective implementation of the functions of this management.

There are several ways for improving the efficiency of the enterprise, such as refection of the organization of production, labor and management, increasing the technical level of production and improving the quality of products [5].

Increasing the technical level of production

The features of the management system of industrial enterprises at the present stage are closely related to the change in strategic orientations in their activities. The main economic objectives of the company in market conditions are to increase production efficiency, maximize profits, conquer new markets and meet the needs of the team. At the same time, the influence of the economic risk factor is increasing, there are advantages of free pricing, the possibility of independent choice of suppliers and consumers.

The development and implementation of the enterprise strategy essentially reduces to managing the economy at the micro level, for which it is necessary to build an appropriate system that performs the following main functions:

— directing — justification of the objectives and selection of the main ways to achieve them;

— coordinating — balancing the most important resource constraints and reconciling the conflicting interests of all participants in the production process;

— stimulating — activation of the driving forces of development.

Planning of technical development of production consists of a complex of technical, organizational, planned economic and social measures aimed at raising the technical level of production, increasing the output of high-quality products, increasing labor productivity, improving the use of fixed assets, production capacities, material and labor resources, improving the intra-plant management system, planning, economic incentives, improvement of working conditions.

Perfection of the organization of production, labor and management

Work on the organization of labor of the personnel of the enterprise should begin with the study of its actual state. For this purpose it is recommended to use accounting and reporting data, materials of technical, economic, psycho physiological and sociological research. It is recommended to design the measures for the organization of labor on the basis of technical tasks. They, as a rule, specify:

— the purpose and content of the development;

— the order and the main stages of its conduct;

— deadlines;

— labor intensity of work;

— the costs of its implementation and the expected economic and social effect;

— results of development in the form of a completed project with documentation.

Work on the organization of labor is conducted in accordance with the management system adopted by the employer at the enterprise with the participation of representatives of employees taking into account the opinion of the chosen trade union body. This provision is governed by the Labor Code of the Russian Federation.

The analysis should be conducted on the basis of a direct study of the organization of work at workplaces, production sites, in the shops of the enterprise. In a number of cases, the analysis of the organization of labor and production is complemented by an analysis of the performance of equipment, technological equipment and other technical means of production. This determines the desirability of a comprehensive analysis of the organization of labor in all or most areas of its improvement so that in the future, simultaneously and in a relationship, the issues of the organization of labor and production, technology and technology.

Improving the quality of products

In modern conditions, the objective need to improve the level of product quality is due to several reasons:

— the quality of products becomes one of the decisive factors for increasing production efficiency and intensive development of the economy as a whole;

— production of low-quality products causes great economic damage to individual enterprises and the entire national economy;

— the psychology of the consumer and his requirements to the quality of the product are changing;

Quality is one of the most important factors in the competitiveness of products in the context of increasing competition for markets.

Improving the quality of products is the most important way to increase production efficiency. The efficiency of production is determined by the ratio of the results obtained and the costs incurred. Increase efficiency can be done in two ways: by reducing production costs or increasing the social significance of the results of labor, which can increase not only by increasing the quantity of products, but also by improving its quality. The first way has certain boundaries, the second one is practically unlimited.

In most cases, quality improvement stimulates the growth of consumption volumes, and consequently, production. This is due to the fact that a new, higher quality is not only created to meet a higher demand, but also changes the nature of existing needs or generates new ones and gives impulses to the development of social production and to raising the standard of living of people.

Improving quality is equivalent to increasing the volume of products without additional resources. Calculations showed that the effectiveness of investments aimed at improving the quality of products is approximately 2 times higher than the cost effectiveness of increasing its output.

 

  1. CALCULATING OF PROFITABILITY AND EFFICIENCY OF THE ENTERPISE
    • Calculating the profitability of the enterprise

If we turn to the definition, the profitability – a relative measure of economic efficiency. Profitability is measured as a percentage, and is calculated by dividing the profit for the amount of assets and resources, its form.                                    Thus, the profitability of the company is an indicator showing the degree of efficiency of use of enterprise in the activity of property assets (working capital and equity). The main sense of profitability calculations to show how much profit is obtained now on each ruble invested in its production facilities.                        The level of profitability is influenced by many factors: the capital structure, its sources, structure and value of the assets, the degree of involvement of productive resources in the activities of the company, the cost of working capital, their sources, the amount of sales revenue, the value established for the reporting period costs.

The formula for calculating profitability [20]

Pn = B / (average BPA + average OA), where

P — the company’s profitability;

B — tax profit for the reporting period;

BPA average — average value of fixed assets of the company during the reporting period;

OA average — average value of current assets for the period.

Balance profit enterprise. This is also called the accounting profit. In fact, this company’s profit received in the reporting period, ie, pre-tax profit. To obtain this value, it is necessary from the resulting from product sales and services revenue deduct the following indicators:

  • cost of goods, works and services;
  • selling costs;
  • administrative expenses.

Do not forget to add to the amount received income from operating and non-sales activities. If these types of operations resulted in a loss — subtract it from the total.                                                                                                                            The resulting value will be the company’s profit before tax. If you take the accounting profit and loss statement (Form №2), then the value of the balance sheet profit is possible to «spy» on line «profit (loss) before tax».

The average values ​​of current assets and production assets. The average cost of fixed assets is determined by fairly simple way. We need to take the value of productive assets at the beginning of the reporting period and at the end, put them together and divide by two. The same goes for the definition of the average value of current assets.

If you take the balance sheet (Form №1), then the value of fixed assets, we see the line «Fixed assets».                                                                                 The cost of working capital in the same looking statements. The values ​​at the beginning and end of the year can be found on the bottom line of the second section of the document, «Current assets». Also find the median.                Substitute all formula and find the company’s profitability. Here is an example.

Example of calculation of profitability:

The company «Omega» in 2011 received 20 thousand rubles total profit subject to income tax. In this case, the value of its assets at the beginning of the year was 5300, and at the end — 10 200 rubles. The result of the second section of the balance of «current assets» as of 1 January 2011 amounted to 30,800, and at the end of 2011 — 30 500 rubles. Let us find the profitability of the enterprise.

The average BPA will be: (5300 + 10200) / 2 = 7750 rubles.

Average OA: (+30 30 800 500) / 2 = 30 650 rubles.

Profitability of the company is: [20000 / (7750 + 30650)] * 100% = 52%

52% ROI — a good result for the company. But for accurate analysis of profitability is better to make a comparison of its performance over time. If there is a growth in profitability, it can be argued that current management policy of the company is effective and leads to prosperity. If there is a decline in the index — should look for reasons for the decline of profitability of your business.

As example we considering Confectionery Factory «Sweets» that was founded on May 10, 1962 in order to concentrate production of three confectionery factories by uniting them in the production company «Sweets». In the few first years of united enterprises existence technical equipment were updated and a assortment of products become wider. In 1998, Nestlé S.A. purchased block of  Confectionery Factory «Sweets» shares. In few last years «Sweets» occupied about 10% of confectionery market in Russia. The main types of  Confectionery Factory «Sweets» economic activities are manufacturing of cocoa, chocolate and sugar confectionery.

Analysis of non-current assets begins with the study of the dynamics of their total and individual species. Summary of the first section indicates the asset balance by the amount of non-current assets, which it uses in business. In analyzing reveal types of non-current assets, from which there was a change of their total. Analysis of the dynamics and structure of fixed assets is provided in analytical table (Table 2):

Dynamics, composition and structure of non-current assets

Table 2

 

Non-current assets At the beginning of the reporting period At the end of the reporting period Deviation

(+, -)

Cost, ths. RUB Structure, % Cost, ths. RUB Structure, % Absolute, ths. RUB In structure, %
Intangible assets 83 0.028 17 0,00568 -66 -0,022
Unfinished construction 23326 7,783 30414 10,166 7088 2,38
Fixed Assets 274301 91,522 268683 89,804 -5618 -1.72
Long-term financial investments
— Which accounted for using the equity method of other enterprises
— Other financial investments
Long-term receivables
Deferred tax assets 73 0,024 73 0.024

 

Other non-current assets
Total 299710 100 299187 100 -523

 

A large proportion of fixed assets as part of non-current assets (89.804%).But its share has decreased compared with the previous year (-1.72), which is negative for the enterprise.This probably will decrease the income of enterprise. The proportion of unfinished construction is much increased (2.38%).

Rate of depreciation and coefficient of suitability two main indicators that evaluated the appropriate technical condition of fixed assets. Rate of depreciation shows the proportion of fixed assets value transferred to finished goods. Coefficient of suitability – an indicator opposite to the rate of depreciation. It shows the proportion of fixed assets suitable for use in the course of economic activity. Analysis of fixed assets is provided in analytical table (Table 3):

 Dynamics of indicators of technical state of fixed assets

Table 3

Indicators Previous year Reporting year Deviation (+, -)
absolute relative, %
The original value of fixed assets, ths. RUB 463208 487415 24207 5
Tearing down of fixed assets, ths. RUB 188907 218732 29825 15.8
Depreciated cost of the fixed assets 274301 268683 -5618 -2.05
Rate of depreciation 0.41 0.45 0,04 X
Coefficient of suitability 0.59 0.55 -0,04 X

 

As we see, coefficient of suitability is t higher han the rate of depreciation. It means that the quality (technical) state of fixed assets is good, but compared to the previous year, a situation worsened. The level of depreciation of fixed assets is 55%, because rate of depreciation that has increased by 4% and coefficient of suitability decreased by 4% .

To the indicators of movement of fixed assets refer absolute indicators of receipt, disposal of fixed assets for the period under review, coefficients of disposal, renewal and growth of fixed assets. Analysis of movement of fixed assets is provided in analytical table (Table 4):

Dynamics of indicators of movement of fixed assets

Table 4

 

Indicators Previous year Reporting year Deviation (+, -)
absolute relative, %
The original value production fixed assets at beginning of year, ths. RUB 356703 463208 106505 29.9
The original value of production fixed assets at year-end, ths. RUB 463208 487415 24207 5.2
Annual volume of proceeds of fixed assets, ths RUB 106505 24207 -82298 -77.27
Annual volume of disposal of fixed assets, ths. RUB
Renewal rate of fixed assets 0.23 0.5 0.27 X
Coefficient of disposal of fixed assets -0.25 X
Rate of growth of fixed assets 0.3 0.05 -0.25 X

 

Annual volume of proceeds of fixed assets decreased in the present year compared to the previous (-82298). There wasn’t a disposal of fixed assets. Renewal rate of fixed assets is very low (0.05). It means that there were not introduced new fixed assets in the production process.

Effectiveness of fixed assets using is measured at the system physical and value indicators, basic among which are yield of capital investments and stock-capacity. Yield of capital investments — an indicator that characterizes the amount of output (or the volume of sales) per monetary unit of industrial fixed assets of the company. Stock-capacity is inverse yield of capital investments index, it characterizes the average value of industrial fixed assets per unit of output (or volume of sales). Analysis of the efficiency of fixed assets is provided in analytical table (Table 5):

Dynamics of indicators of the efficiency of fixed assets

Table 5

Indicator Previous year Reporting year Deviation (+, -)
absolute relative, %
Scope of production, ths. RUB 989053 978530 -10523 -1.06

 

The average annual value of fixed assets, ths. RUB 234283 271492 37209 15.88
Yield of capital investments of fixed assets, RUB 4,222 3,604 -0,617 -14.62
Stock-capacity of fixed assets, hr. / RUB 0,237 0,277 0,04 +17.13

 

Analyzing the data table we see, that the scope of production decreased in reporting year (-10523). The yield of capital investments of fixed assets is decreased compared with the previous period (-14.62%). It has negative effect on efficiency of production. Stock-capacity of fixed assets has the negative impact on production to, but in a lesser volume, because it grows not on high level (+17.13%). It’s necessary to use fixed assets more efficiency to improving the scope of production.

 

  • Analysis of profitability of the enterprise

An important part of the management mechanism is the analysis of the profitability of the enterprise. Profitability analysis is a process of studying the conditions and the results of its formation and use in order to identify the reserves for further improving the efficiency of its management in the enterprise.

Analysis of the profit of the enterprise provides research of its level and dynamics, changes in each of profit (loss) indicators for the reporting period compared to the previous period. Information about the main types of company profits, as well as basic data for their calculation contains «Report on financial results». The analysis of different types of income of the company for the period under review is provided in table 6.

Level and dynamics of financial results

Table 6

 

Indicators Previous year Reporting year Deviation (+, -)
absolute relative, %
Income (revenue) from sales of products (goods and services), ths. RUB 989053 978530 -10523 98,936
Prime cost of sales (goods and services), ths. RUB 914902 910920 -3982 99,564
Gross profit (loss), ths. RUB 74151 67610 -6541 91,178
Other operating income, ths. RUB 8263 6779 -1484 82,040
Administrative expenses, ths. RUB 13442 13201 -241 98,207
Selling expenses, ths. RUB 2424 2290 -134 94,471
Other operating expenses, ths RUB 15163 16452 1289 108,5
Profit (loss) from operating activity, ths. RUB 66575 51385 -15190 77,183
Income from equity ths RUB 0 0 0 0
Other financial income ths RUB 53 9 -44 16,981
Other income, ths. RUB 5 8368 8363 167360
Financial expenses, ths. RUB 87 28 -59 32,183
Other expenses ths RUB 6321 14451 8130 228,618
Profit (loss) from ordinary activities before taxation, ths. RUB 45035 36344 -8691 80,701
Profit (loss) from ordinary activity, ths RUB 51385 42446 -8939 82,603
Net profit, ths. RUB 41252 28076 -13176 68,059

 

The table shows that income (revenue) from sales of products (goods and services) is decreased (+4326 ths. RUB) and all expenses are increased in reporting year . This may be due to changes with the changes in sales volume, the structure of production, selling prices of products sold, prices of raw materials, fuel, electricity tariffs and transportation, the level of costs of material and labor resources. Company is not engaged in extraordinary activity. So there is no extraordinary income and expenses.

The system of key indicators of profitability of products include: gross profitability, operating profitability ,net operating profitability.

Indicators of profitability of capital characterize the relationship of profits and capital invested in the formation of enterprise assets in order to obtain those profits.

The most important indicators of profitability of capital are: operating return on assets, net return on assets, net return on equity. Indicators of profitability for the period under review is provided in the table 7.

The most important indicators of profitability of capital are: operating return on assets, net return on assets, net return on equity. Indicators of profitability for the period under review is provided in the table 7.

 

Level and dynamics of indicators of profitability

Table 7

Indicators Indicator value Absolute deviation (+, -)
Previous year Reporting year
Gross margin of products,% 181 241 +66
Operating product profitability,% 5,20 4,3 -1
Net operating profitability of products,% 4.2 3.3 -0.9
Operating return on assets,% 24.3 22.8 -1.5
Net return on assets,% 12.8 10.9 -1.9
Net return on equity,% 30.8 26.3 -4.5

 

Analysis of the level and dynamics of profitability of the enterprise during the reporting period was lower than in the previous period. For all analyzed parameters except for gross profitability, there is a negative trend, but gross margin increased by 66.

 

CONCLUSION

In modern conditions of economic development, indicators of financial result and financial condition are important indicators of the economic efficiency of enterprises. The profitability of the enterprise indicates that its products have found their customers, it has received a certain mass of profit, some of which will come in the form of profit tax in the state income, and the balance will be used for the needs of expanded reproduction and social development of the team.

The main task of profitability analysis is to identify the reserves of its further growth and increase on this basis the level of profitability of the enterprise. The analysis of profit and profitability of the enterprise in market relations is the most important direction of the analysis of the enterprise as a whole, as revealing reserves of profit growth in turn should help to strengthen its financial condition.

One of the basic requirements for the functioning of enterprises in a market economy is the break-even of economic and other activities, the reimbursement of expenses by own revenues and the provision, in certain amounts, of profitability and profitability of management. The main task of the enterprise, as a subject of the market, is economic activity aimed at obtaining profit to meet the social and economic interests of the members of the work collective and the interests of the owner of the property of the enterprise.

The most important form of business activity and financial condition of an enterprise is the magnitude of current financial results. A general assessment of the financial condition of an enterprise is given on the basis of such efficient financial indicators as profit and profitability.

Profit as the most important category of market relations performs a number of important functions.

First, profit is the indicator of the effectiveness of the enterprise. In other words, the fact of profitability already testifies to the effective function of the enterprise.

Secondly, profit is the source of income generation budgets of various levels, entering the budgets in the form of taxes and various economic sanctions.

Thus, the profit of the enterprise is the main factor of its economic and social development, and the enterprise is interested in getting the maximum profit in the competitive activity.

 

REFERENSES

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