How to calculate the rate of return formula. Calculation of the rate of net profit (formula). Why is normal profit calculated?

Nobody is in business at a loss. Even the sale of seeds brings a certain profit to the seller. But here it is easy to figure out what it will be and where to use it. At enterprises, issues of profit are more difficult to solve - first you need to find funds, invest them, sell goods, distribute debts, and get a net profit. How is the rate of profit calculated in production? Let's try to figure it all out.

Profits and production costs

In any field of activity, and especially in production, important concepts income and expenses are considered. These are the main economic indicators that directly form the cause and financial features of the enterprise. In order for an enterprise to eventually form a net profit margin, it is always necessary to incur expenses. The important point is that expenses do not exceed income, otherwise the organization's activities are meaningless. Therefore, the costs must be properly distributed. But the profit already depends on how correctly the employees allocate these costs and in what direction they will be directed.

Rate of return: definition

Having dealt with some concepts, it will become easier to understand the features of the economics of production. So, the rate of profit is the percentage ratio between the profit for a certain period to the capital advanced before its beginning. In other words, this indicator reflects the increase in capital that was invested at the beginning of the reporting period. The funds advanced, in turn, include workers' wages and production costs. The main thing in this definition is the mass of profit.

What affects the dynamics of profit?

Rate of return like any other economic indicator depends on many factors. One of the factors influencing its dynamics is the market price and market macroeconomic conditions. And, of course, the rate of net profit depends on supply and demand in the market. This indicator determines the return on investment in relation to the amount of money invested.

When there is a difference between these indicators in the direction of decreasing demand for the company's products, this indicates that the rate of return is at a low level, and there is a threat of a loss.

Changes affect its dynamics:

the structure of capital, if the expenditure on elements of constant capital is less, then the rate of profit becomes higher, and vice versa;
capital turnover rate - the higher it is, the better it affects profit; more income brings short-term turnover of capital, in contrast to the long-term.

Factor determining the rate of return

The main determining factors of the rate of return are considered to be the mass of profit, the rate of capital turnover, the cost structure of the money invested, the scale of the means of production and their savings. Each of these factors affects income and its components in its own way. But the biggest impact on profitability is the amount of profit. This is the absolute value of the profit received. The higher this indicator, the more profitable business. This approach helps to determine the right steps in the subsequent development of the business.

How can profit be expressed?

Profit can be expressed in the profitability of the enterprise. Since this indicator is very tightly intertwined with the rate of return. What is it expressed in? As well as profit, the real indicator can be determined at the end of life cycle project.

The qualitative measurement of profit is directly the rate of profit, which is calculated by the ratio of surplus value to the advanced capital.

The owner can calculate the income received as a percentage of the invested funds or in monetary units common in many countries. At the moment, dollars are used when receiving and calculating profits.

How is this indicator calculated?

Profit is the end result of the enterprise, which is determined by the following formula:

P \u003d W-W general.,

where "P" - profit, "B" - revenue from the sale of products, "Z gen." - the total cost of creating a product and its promotion.

The calculation of the rate of return is determined by the ratio of net profit to total investment. The data is received as a percentage.

This allows you to determine the evaluation of projects that directly require capital investment. And on the basis of the data obtained, conclusions can be drawn.

The higher the profit value, the better for the enterprise, since the profit can be invested in the further development of the organization's project or the expansion of production. This will positively influence the activity of the enterprise and increase the level of income in the future. According to the indicators of profit, one can judge the expediency of the contribution Money to the company. The value of this indicator speeds up the decision-making process.

Two ways to generate income for an enterprise

The internal rate of return is the type of income that arises when investments and cash flows from investments are equal. In this case, the company will receive income in two ways:

capital investments under IRR(%) in any monetary instruments;
capital investments that produce cash flow, in this case all components of this flow are invested by IRR(%).

IRR in this case plays the role of a barrier. For an investor, this is very important indicator, because, having studied it, he sees: to develop the project or reject it. If the cost of invested funds is higher than the value of this indicator, then the project will be unprofitable and should be rejected.

IRR is the ratio of the cost of capital raised and the benefits of the project, taking into account the funds spent. The most favorable value of this indicator is achieved by reducing the time between discount rates.

How is the average rate of profit determined?

There is a natural mechanism for the formation of the average rate of profit. This value is no longer determined specifically by the market, it is formed by the owners (capitalists) and investors. Here the leading role is occupied by the emergence of competition, which we will discuss below.

In general, the process of formation of the average rate of profit consists in the fact that the capitalists, seeing enough high profit received by the company, they strive to earn more in production. For this reason, more favorable sales conditions are being developed. Investors also seek to inject their capital into an industry that will bring profit. There is intra-industry competition, as there are more homogeneous industries. But intersectoral competition may also arise, which also determines the formation of the average rate of profit.

The impact of competition on this indicator

The average rate of profit is affected by two types of competition: intersectoral and intrasectoral.

Intra-industry competition is rivalry in one industry where homogeneous goods are produced. Here, all forces and means are directed to the production of this product. In this case, its cost increases. In the market, the competition of a commodity is determined not by individual, but by equal social value. And its value is due to averages. As a result, the rate of profit of the enterprise may tend to decline, which has a bad effect on the work as a whole. To avoid this phenomenon, capitalists tend to introduce new technologies that contribute to the rapid process of production with minimal cost and try to match market prices without loss.

Intersectoral competition is competition between the capitalists themselves from different branches, where profits, the rate of profit, are at a higher level. Since capitals are poured into various branches, they have different structure. As you know, surplus value is created only by attracting employees, a corresponding mass of surplus-value falls on a smaller capital. And in enterprises with a high organic composition of capital, the surplus value will be less. The emergence of this type of competition leads to the transfer of funds from one industry to another. The transfer of capital leads to a decrease in surplus value in an industry with a low structure, an increase in the production of goods, a fall in the market price, and a reduction in the industry mass. As a result of the transfusion, the average rate of return is leveled, which is determined by the formula: P΄ cp = Ʃ m: Ʃ (C+V) × 100%,

where Ʃm- the total surplus value that is created in different industries;

Ʃ (C+V)- the total capital advanced in various industries.

As a result, the company receives an average profit in all industries.

2 Estimated rate of return (aror)

The second method of capital investment analysis based on accounting is the estimated rate of return (AROR), also known as return on capital (ROI). As the name implies, this method compares the profitability of the project and the invested capital. One of the disadvantages of this method is that there are many ways to define the concept of "income" and "invested capital". Various income estimates may or may not include financial costs, depreciation, and taxes. However, the most common definition the concept of “income” in the calculation of AROR is “earnings before interest and taxes”, which includes depreciation.

Usually AROR is used in two ways depending on the definition of invested capital. It may include either the initial capital invested or the average capital invested over the life of the investment. The initial capital invested consists of the costs of purchasing and installing fixed assets and the increase in working capital required for initial stage investment. However, at the last stage of the project, the invested capital is reduced to the residual value of the equipment plus the remaining components of working capital.

The formula can be represented as:

(2.2),

The results obtained are noticeably different from each other. However, if both the establishment of acceptance criteria and the financial analysis are produced by the same method, investment decisions based on them will not differ.

Like the ROI, the AROR method has its drawbacks. It uses book profits (rather than cash flows) as an estimate of the profitability of projects. It has already been noted that there are many ways to calculate book profit, which makes it possible to manipulate the AROR indicator. Inconsistencies in earnings calculations result in widely differing AROR values, and often these inconsistencies are the result of changes in the firm's accounting policies that investment decision makers may not be familiar with. In addition, book profit suffers from “distortions” such as depreciation costs, gains or losses on the sale of fixed assets, which are not true cash flows and therefore do not affect the wealth of investors.

The second important drawback of AROR (like RR) is that it does not take into account the time aspect of the value of money. Returns on investments are calculated as average reported returns, although returns are earned over time and may vary from year to year.

Another problem with AROR arises when the "average capital investment" case is used. Here, the initial costs and residual value of the investment are averaged to reflect the value of assets linked together over the life of the investment. The greater the residual value of the investment, the higher the denominator in the AROR formula becomes and the lower the value of the calculated rate of return.

The residual value paradox is a problem in AROR investment evaluation that can lead to the wrong decision.

In practice, AROR is very often used to justify investment decisions. This may be due to the fact that decision makers often prefer to analyze investments through profits, since the performance of managers themselves is often evaluated according to this criterion. There is no doubt that the use of this indicator for project evaluation leads in some organizations to making erroneous investment decisions.

Thus, it cannot be overlooked that the two main “traditional” methods of analysis are not ideal. Although both are used in practice, they also have a number of serious drawbacks that lead to wrong investment decisions. In the theoretical literature on investment activity, these methods are not given much attention. They have been superseded by "complex" methods rooted in economic theory.

The economic approach to project analysis involves determining the value of the project in comparison with other projects, as well as analyzing the financial attractiveness of the project, given the limited resources. The most famous and often used in practice is the net present value (NPV).

net present value allows you to get the most generalized characteristic of the investment result, that is, its final effect in the absolute amount. Net present value refers to the difference between the discounted present value of the amount of cash flow over the period of operation investment project and the amount of funds invested in its implementation.

(2.4),

where NPV is net present value;

DP - the amount of cash flow (in present value) for the entire period of operation of the investment project (before the start of investment in it). If it is difficult to determine the full period of operation before the start of a new investment in this object, it is taken in the calculations in the amount of 5 years (this is the average depreciation period of equipment, after which it must be replaced);

IP - the amount of investment funds (in present value) directed to the implementation of the investment project.

If we expand the components of the previous formula, then it will take the form:

NPV=

(2.5),

Where B is the total benefits for year t;

C - total costs for the year t;

t is the corresponding year of the project (1,2,3, …n);

i - discount rate (percentage).

When characterizing the indicator of net present value, it should be noted that it can be used not only for a comparative assessment of the effectiveness of investment projects, but also as a criterion for the expediency of their implementation.

An investment project with a negative net present value (see Figure 1a) or zero (see Figure 1b) should be rejected, as it will not bring the investor additional return on invested capital. Investment projects with a positive net present value (see Figure 1c) allow you to increase the investor's capital.

Net present value (NPV) has obvious advantages and disadvantages.

The advantage is that this indicator is absolute and takes into account the scale of investment. This allows you to calculate the increase in the value of the company or the value of the investor's capital. But these advantages also come with disadvantages.

The first is that the amount of net present income is difficult, and in some cases impossible to normalize. For example, the net present value of a project is 20 thousand UAH. Is it a lot or a little? It is difficult to answer this question, especially if we consider a non-alternative project. It is possible, of course, to set a lower threshold for the amount of net present value, if it is not reached, the project is rejected. But this is largely a voluntaristic measure that does not reflect the essence of the investment process.

The second drawback is related to the fact that the net present value does not explicitly show what investment efforts will achieve the result. Although the amount of investment is taken into account in the net present value calculation, there is no relative comparison.

D Another general criterion, which is much less frequently used in the practice of design decisions, is the Benefit-Cost ratio. It is defined as the sum of the discounted benefits divided by the sum of the discounted costs.

(2.6),

The criterion for selecting projects using the benefit-cost ratio is that if the value of the coefficient is equal to or greater than one, the implementation of the project is recognized as successful. Despite the popularity of this indicator. It has flaws. This indicator is not acceptable for ranking by the advantages of independent projects and is absolutely not suitable for selecting mutually exclusive projects. This indicator does not show the actual net benefits of the project. For example, a small project may have a significantly higher benefit-cost ratio than a large project, and if you do not use the NPV calculation, you can make an erroneous decision on the project.

Yield index shows the relative profitability of the project or the discounted value of cash receipts from the project per unit of investment.

The calculation of the profitability index is carried out according to the formula:

(2.7),

where ID is the profitability index for the investment project;

DP - the amount of cash flow in present value;

IP - the amount of investment funds allocated for the implementation of the investment project (if investments are at different times, also reduced to the present value).

The indicator "index of profitability" can also be used not only for a comparative assessment, but also as a criterion when accepting an investment project for implementation.

If the value of the profitability index is less than or equal to one, then the project should be rejected due to the fact that it will not bring additional income investor. Consequently, investment projects can be accepted for implementation only with the value of the index of profitability above one.

Comparing the indicators "index of return" and "net present income", we pay attention to the fact that the results of evaluating the effectiveness of investments are directly dependent: with the growth of the absolute value of net present income, the value of the index of return increases and vice versa. In addition, at zero value of net present income, the profitability index will always be equal to one. This means that only one (any) of them can be used as a criterion indicator of the expediency of implementing an investment project. But if carried out comparative evaluation, then in this case both indicators should be considered: net present value and profitability index, since they allow the investor to assess the effectiveness of investments from different angles.

Payback period- this is the period during which the amount of income received will be equal to the amount of investment made.

The calculation of this indicator is carried out according to the formula:

(2.8),

where PO is the payback period for invested funds for an investment project;

IS - the amount of investment funds allocated for the implementation of the investment project (if the investments are different in time, they are reduced to the present value);

- the average amount of cash flow (in present value) in the period. For short-term investments, this period is taken as one month, and for long-term investments - for one year;

n is the number of periods.

When characterizing the “payback period” indicator, one should pay attention to the fact that it can be used to assess not only the effectiveness of investments, but also the level of investment risks associated with liquidity (the longer the period of project implementation until its full payback, the higher the level of investment risks ). The disadvantage of this indicator is that it does not take into account those cash flows that are formed after the payback period of investments. So, for investment projects with long term operation after their payback period, a much larger amount of net present value can be obtained than from investment projects with short term operation (with a similar and even faster payback period).

Internal rate of return(IRR) is the most complex of all indicators in terms of the mechanism for its calculation. This indicator characterizes the level of profitability of a particular investment project, expressed as a discount rate, at which the future value of the cash flow from investments is reduced to the present value of the invested funds. The internal rate of return can be described as the discount rate at which the net present value will be reduced to zero in the discounting process.

To determine the internal rate of return, methods of approximate calculations are used, one of which is the method of linear interpolation. To apply this method, you must perform the following algorithm:

In this figure

is the net present value corresponding to the value of the penultimate interest rate, and

is the net present value corresponding to the value of the last interest rate.

Using the interpolation method, we find the calculated value of the internal rate of return according to the formula:

(2.9)

Describing the indicator “internal rate of return”, it should be noted that it is the most suitable for comparative assessment. At the same time, a comparative assessment can be carried out not only within the framework of the investment projects under consideration, but also in a wider range (for example, comparing the internal rate of return on an investment project with the level of profitability of the assets used in the course of the company's current business activities; with an average rate of return on investments; with the rate profitability on alternative investment - deposits, purchase of government bonds). In addition, each company, taking into account its level of investment risks, can set for itself a criterion indicator of the internal rate of return used to evaluate projects. Projects with a lower internal rate of return will be automatically rejected as inappropriate for the efficiency of real investments. Such an indicator in the practice of evaluating investment projects is called the “marginal rate of internal rate of return”.

Despite some positive properties of the IRR indicator, it has disadvantages:

There may not be a single IRR for a project. Such a set of solutions may appear if the annual cash flows during the project implementation period change sign (from positive to negative and vice versa) several times. This happens when the income received from the implementation of the project is reinvested in the project.

The use of one value of the discount rate provides that its value will be constant throughout the entire life of the project. But for projects with a long implementation period (given their high uncertainty in later periods), it is hardly possible to apply a single discount factor throughout the entire life cycle of the project.

Despite such criticism, the IRR indicator is firmly rooted in project analysis and most projects rely on it.

Modern project analysis insists on the combined use of NPV and IRR indicators. The KA criterion for evaluating a project, the internal rate of return, sets the boundary for accepting projects for implementation. Formally, IRR shows the discount rate at which the project does not increase or decrease the value of the firm, so domestic analysts call this indicator the verified discount. It shows the boundary value of the discount factor, which divides investments into acceptable and unacceptable.

Let us give an example of the calculation of performance indicators.

A project for the development of the production of children's toys was submitted for consideration. Planned cash flows in thousand hryvnia, which arise as a result of the project implementation, are distributed by years:

Suppose the project is implemented at the expense of credit funds at a bank interest rate of 10% per year. Will your decision change if the bank raises the rate to 18%?

To solve the problem, it is necessary to determine the criteria for net present value for the project, the benefit-cost ratio and the internal rate of return, calculate the amount of discounted cash flows at a discount rate of 10 and 18%. We summarize the results of the calculations in a table.

To 10%	Net cash flow = V-Z	B(10%) discount	Z(10%) discount

At a discount rate of 10%, the NPV for the project is UAH 144.7 thousand. . benefit ratio - cost of V/O =

, which indicates the feasibility of the project, because NPV>0 and V/C>1.

At a rate of 18% NPV=-103.4, as NPV

Let's calculate the value of IRR, which reflects the marginal value of the discount rate, above which the project becomes unprofitable.

IRR=10+

Let's make a conclusion. With a discount rate of 10%, the project is profitable, but with an increase in the discount rate of more than 14.2%, it goes into the unprofitable zone.

When forming an investment program, it becomes necessary to compare projects with different durations. According to NPV indicators taken from business plans, it is not correct to make a comparison. In this case, the method for calculating NPV reduced flows is used, which is as follows:

The least common multiple (LCM) of the duration of the analyzed projects is determined Z=LCM(i, j);

Considering each of the projects as repeating a certain number of times (n) in period Z, the total NPV is determined for each of the pairwise compared projects according to the formula:

NPV =NPV

…) (2.10),

Where NPV i is the net present value of the original project (taken from the business plan);

n is the duration of the project.

i - interest rate;

Example. Select a preferred project from the pool projects A, B, C with different implementation dates, using the data:

The least common multiple of the duration of the projects is 6. During this period, project A can be repeated three times and project B twice. We analyze projects A and B in pairs. The total NPV of project A (A) in the case of a threefold repetition:

NPV(A)=3.3+

million

Total NPV(B) in case of double repetition:

NPV(B)=

million

Project B is preferable.

We carry out similar comparisons for a pairwise comparison of projects B and C, we get that in the case of a threefold repetition of project C, the total NPV will be:

NPV(V)=4.96+

million

In this case, project B is preferable.

For the formation of the investment program, we have a priority number of projects: C, B, A.

If you analyze dozens of projects that differ in duration, the calculations take longer. In this case, they can be simplified if we assume that each of the analyzed projects is implemented an unlimited number of times. In this case, the number of terms in the formula for calculating NPV(i, n) will tend to infinity, and the value of NPV(i,+) can be found using the formula for an infinitely decreasing geometric progression:

NPV(i,+) = lim i t NPV(i n) = NPV

(2.11)

Of the two pairwise compared projects, the project with the larger NPV(i,+) is preferred.

Project A: NPV(2,+)=3.3*

million

Project B: NPV(3,+)= 5.4*

million

Project B: NPV(2,+)= 4.96*

million

That. the same sequence of projects is obtained: C, B, A.

Profitability analysis

In a market economy, profit is the purpose of the existence of enterprises. Profitability characterizes the ability of the enterprise to produce profit, reflecting the generalized efficiency of all economic activities of the enterprise.

AT general view profitability as an indicator of efficiency is determined by the relationship between the economic and financial benefits received, on the one hand, and the efforts of the enterprise associated with their receipt, on the other hand. The indicator under consideration can take different forms, depending on the gross or net profit in the numerator and the calculation base expressing the efforts or costs (economic asset, capital, cost of sales, cost of goods sold at the sale price, etc.).

AT analysis it is necessary to present the main indicators that allow to analyze the level of profitability.

Gross profit margin(indicator 46) characterizes the share of gross profit per one leu of net sales.

Its value should remain unchanged or increase in dynamics. A decrease in the level of this indicator means an increase in the cost of sales. The gross profit margin is influenced by the following factors: the structure of sales, the cost of sales, the selling price. The volume of production does not have a direct impact, because, acting on the numerator and denominator in the same proportion, the impact on the gross profit rate becomes equal to zero. However, the volume of production has an indirect impact through the cost, since in conditions where the volume of production is growing, the unit cost of production is reduced due to fixed costs.

operating profit margin(indicator 47) reflects the ability of an enterprise to earn profit from its main activity per one leu of sales.

Net profit margin(indicator 48) characterizes the ability of the enterprise to produce net profit, received on average by the enterprise per one lei of net sales.

An increase in the level of this coefficient means effective management production process. This coefficient depends on the value of the income tax rate and the ability of the enterprise to enjoy tax benefits. In conditions when the tax rate is stable, the level of net profit depends on the efficiency of the use of borrowed sources. The net profit rate is analyzed in dynamics and the higher its value, the "richer" the shareholders.

Economic Profitability (ROA)(indicator 49) characterizes the effectiveness of the funds used in the production process, regardless of whether they are formed at the expense of own or borrowed sources of financing. Its value can be negative in the case when the company incurs losses.

The value of economic profitability can be increased either by increasing the number of turnovers of assets, or by increasing the rate of net profit, or both.

The analysis of economic profitability rates is carried out in dynamics and it must be higher than the inflation rate in order for the enterprise to stay on the market. In Moldova, the value is not lower than 10-15%, i.e. for each lei at least 10-15 bani of profit. (there is an opinion of 20-25%)

The rate of economic return will allow the company to update and increase its assets as quickly as possible.

Return on advanced capital (indicator 50)

is a private indicator of economic profitability and reflects economic achievements in the use of production assets, regardless of the order of financing and the tax system.

Return on investment (ROE) (indicator 51) measures the return equity, and, consequently, the financial investment of the shareholder in the shares of the enterprise.

Financial profitability reveals the degree of efficiency of equity capital and rewards the owners of the enterprise by paying them dividends and increasing reserves, which, in essence, is an increase in the property of the owners. The recommended level is not less than 15%

Financial profitability depends on the level of economic profitability and the financing structure of the enterprise. It may seem strange, but an increase in financial profitability can be achieved by increasing debt. Like other indicators, the return on equity, analyzed in dynamics and in conjunction with other indicators. The high level of this indicator may be the result of insufficient capitalization (a small amount of equity capital invested in the enterprise by shareholders), and not the high efficiency of the enterprise.

Return on sales ratio (shows how much gross profit falls on a unit of sold products). Gross profit str130F2

Net sales str010F2

Return on investment (ROI) - shows how many monetary units it took the company to receive one monetary unit of profit.

3 factor model of the company "Dupont".

The main apparatus is rigidly determined factor models, which are widely used in Western accounting and analytical practice.

For example, to analyze the return on equity ratio, the following rigidly determined three-factor dependence is laid down:

From the presented model, it can be seen that the return on equity depends on the following three factors:

Sales profitability

resource productivity

Structures of sources of funds advanced in this enterprise. The significance of the identified factors from the standpoint current management is explained by the fact that they, in a certain sense, generalize all aspects of the financial and economic activities of the enterprise, in particular, the first factor summarizes the statement of financial results, the second - the balance sheet asset, the third - the balance sheet liability.

RATE OF PROFIT. PROFITABILITY

Being an absolute value, profit is related to the scale of production, depends on the size of the enterprise, which to a certain extent limits its analytical capabilities as a criterion for the effectiveness of its work in market economy.

Indicators of profitability (profitability) of the enterprise allow us to evaluate its financial results and ultimately efficiency. These indicators usually include the level of profitability, or the profitability ratio, which is expressed as the ratio of one or another type of profit to any base. Numerous profitability indicators reflect different aspects of the enterprise. It is quite natural that, in general, the efficiency of an enterprise can be determined only by a system of profitability indicators.

Profitability of sales, which is calculated by the formula:

Rv (ROS)= (R/VR) 100%

where P - profit from sales;

Вр - sales revenue.

An increase in this indicator may reflect an increase in product prices at constant costs or an increase in demand and, accordingly, a decrease in unit costs. This indicator shows the share of profit in sales revenue, therefore, the ratio of profit in it and the total cost of sales. It is with the help of this indicator that an enterprise can decide on the choice of a way to increase profits: either reduce costs or increase production. This indicator, calculated on the basis of net income, is called net return on sales.

Return on assets (return on investment):

R A (ROA)= (P/A) 100%

where P is the profit of the enterprise (profit from sales, balance sheet or net profit can be used);

A - the average value of the assets (property) of the enterprise for a certain period.

This indicator reflects the efficiency of the use of all property of the enterprise. The dynamics of return on assets is a barometer of the state of the economy. As a factor of production, return on assets and its changes perform an incentive function in that it gives a signal to investors. In this case, the signal strength depends on quantification or return on assets. The average return on assets in Japan is about 10.3%, and in the US -16.8%. In Japan, it is considered profitable if capital investments pay off in 7 years, and in the USA -4.5 years.

Return on assets can be represented as the product of the following two indicators:

R A \u003d R B * O A \u003d (P / BP) * (BP / A) \u003d (P / A)

where O A - asset turnover, turnover.

Thus, the profitability of assets is primarily influenced by two groups of factors related to the profitability of sales and asset turnover.

Usually, when analyzing the return on assets, an analysis of current assets is carried out, i.e. working capital, since their impact on this indicator significantly depends on the state and organization of working capital. The calculation is carried out according to the following formula:

R O C \u003d PE / OS

where PE is the net profit of the enterprise;

OS - the average value of the second section of the asset balance of the enterprise - current assets (current assets).

An enterprise can calculate the profitability of non-current assets (fixed assets and intangible assets) in a similar way, i.e. the first section of the asset balance.

Return on equity (share) capital reflects the profitability of the company's own funds:

R SC (ROE) = PR / SC

where SC is the average value of the enterprise's own capital for a certain period.

The peculiarity of this indicator is that, firstly, it shows the effectiveness of the use of own funds, i.e. net profit received on the invested ruble, and, secondly, the degree of risk of the enterprise, reflecting the growth of return on equity.

In conjunction with R SC, the famous Dupont formula can be used:

R SK \u003d (PE / BP) * (BP / A) * (A / SK)

This formula significantly expands the analytical capabilities of the enterprise, as a result of which it has the ability to determine:

· the dynamics of net profit in sales proceeds (profitability of sales);

· asset utilization efficiency based on sales proceeds and current trends (asset turnover);

the capital structure of the enterprise based on the share that is in the assets own funds;

· the impact of the above factors on the return on equity.

3. Profit, rate of return

At a certain price level, a decrease in costs leads to an increase in income, i.e. reverse side production cost is profit. The lower the costs, the higher the profit and vice versa.

Quantitatively, profit is the difference between the income from the sale of products and the total costs of its production.

By economic nature, profit is a converted form of net income. The source of net income is surplus and, to a certain extent, necessary labor. Since net income is a category of distribution, therefore, it can be defined as the realized excess of the cost of goods over production costs.

As a result of the deviation of the price of a commodity from its value, the net income does not quantitatively coincide with the value of the surplus product. The isolation of the producer's costs, which take the form of cost, causes the isolation of income, which takes the form of profit.

A. Smith considered profit, on the one hand, as the result of the worker's labor, since the value that he adds to the cost of materials is divided into two parts: the payment of his labor and the profit of the entrepreneur. On the other hand, A. Smith considered profit as the result of the functioning of capital.

D. Ricardo believed that the amount of profit depends on wages: profit increases if wages decrease. One of the main factors in increasing profits is the social productivity of labor, which, increasing, leads to a decrease in the cost of labor.

According to K. Marx, profit is a transformed form of surplus value, i.e. profit is a function of the advanced capital. The isolation of capital expenditures in the form of production costs leads to the fact that surplus value begins to represent an excess of the value (price) of a commodity over production costs and appears in the form of profit (p).

Many Western economists, when explaining profits, use the theory three factors production of J. B. Say, according to which labor, land and capital take part in the creation of value. Profit is the income from the use of the means of production (capital) and as a payment for the work of the entrepreneur in the management and organization of production, and thus distinguished income from capital and entrepreneurial income.

Criticizing the theory of factors of production, K. Marx substantiated the position that new value is created by living labor. However, labor productivity depends on the technological equipment of production, fertility, location of land, etc. Therefore, capital and land contribute to the creation of more value.

Because in former USSR there were no real market relations, then the attitude towards profit was also relevant. It was believed that it could be set by adjusting prices and tariffs. Since the price was actually regarded as an administrative standard, profit was also a product of rationing. Until the early 1960s. the idea prevailed that it was enough to include profitability in the price, as the ratio of profit to cost at the level of 4-5%, respectively, pricing was carried out in practice. In the 1960s, profitability of up to 15% began to be included in the centralized price.

In the conditions of a modern market economy, profit and the rate of profit are the main guideline and at the same time an indicator of the state of production, a criterion for its effectiveness. The rate of profit shows the efficiency of the use of all capital, the degree of its increase. In modern conditions, the annual rate of return of industrial corporations in the United States is 11-13%, in Western Europe - 8-10%.

Profit- this is the difference between the amount of sales (gross proceeds) from the sale of products and the full cost of production.

P \u003d C - S / S or (10.8)

p = W–K (10.9)

Enterprise profit- this is the difference between the cash proceeds (wholesale price of the enterprise) from the sale of products (works, services) (C) and their full cost (C / C).

The profit of an enterprise received from the sale of products (works, services) and adjusted depending on other income (+) and losses (-) is called book profit.

P B \u003d C - S / S (10.10)

Since January 1, 1991, in Ukraine, not marketable products, but sold ones, have been used as a calculated indicator. Therefore, the mass of profit from sales is defined as the difference between the volume of products sold (excluding sales tax) and the total cost of sales (costs of production and sales).

Since 1993, the indicator of value added tax, excises, has been used instead of turnover tax.

The part of the balance sheet profit that remains after paying taxes and other payments is called net profit.

P P = P B - taxes, mandatory payments (10.11)

Main ways to increase profits enterprises:

Increase in proceeds from the sale of products (works, services) based on an increase in the production of marketable products, an increase in its quality and sale price.

Reducing the cost of production.

The balance and net profit of the enterprise in general terms reflects the final results of management, are the main indicators of the economic and financial activities of the enterprise.

Gross income of the enterprise- the difference between the proceeds from the sale of products (B) and the fund for the reimbursement of spent means of production (FV):

VD P \u003d V - FV, or (10.12)

the sum of the wage fund and the balance sheet profit of the enterprise:

VD P \u003d FZP + P B (10.13)

The totality of the wage fund and the net profit of the enterprise forms the commercial income of the enterprise, which is at its full disposal.

From point of view financial opportunities enterprises in expanded reproduction must take into account the reproductive efficiency of the enterprise. The indicator of the gross income of the enterprise (VD P) acts as a full reproductive effect, and the net product indicator (P N) as the final reproductive effect.

Thus, gross income and net profit are the sources of formation of accumulation and consumption funds, and their size, dynamics, structure of distribution and use determine the pace and efficiency of expanded reproduction of the enterprise.

Therefore, for an enterprise (firm), the issue of profit is important, but one should distinguish between absolute and relative profit indicators.

The absolute value of profit expressed by the concept of "mass of profit". By itself, the mass of profit does not mean anything, therefore this value should always be compared with the annual turnover of the enterprise (firm) or the value of its capital. At the same time, an indicator of the dynamics of profit is also important, a comparison of its value in a given year with the corresponding value of previous years.

Relative profit indicator is the rate of return (profitability), which shows the degree of return production factors used in production.

To determine the efficiency (return on profit) of the current costs of the enterprise for the production of products (works, services), the indicator is used profit rates(ПІ), i.e., the ratio of balance sheet profit to the total cost of sales in percent. Its formula is as follows:

(10.14)

P B - the mass of profit from the sale of products (balance sheet profit),

C / C - full cost.

or

(10.15)

However, it is impossible to judge the efficiency of production only by the mass and the rate of return. It is necessary to take into account the intensive factors that affect the movement of profits. It:

the growth of labor productivity as a result of saving living and materialized labor;

cost reduction;

quality of products (work, services);

return on assets, i.e., the efficiency of the use of production assets.

Therefore, the efficiency of the enterprise to a greater extent characterizes the general indicator - the level of profitability, which is one of the basic indicators of production efficiency at the macro and micro levels.

Profitability- this is a quantitative definition of the ratio of balance sheet profit to the average annual cost of fixed production assets and normalized working capital as a percentage. In the practice of economic activity of the enterprise rate (level) of profitability is determined by the formula:

(10.16)

- rate of return

- balance sheet profit,

is the average annual cost of fixed production assets,

OS N - the cost of circulating normalized funds.

Therefore, the rate of return shows the degree of efficiency (return on profit) of the production resources used. Profitability characterizes the level of return and the degree of use of funds in the process of production and sale of products (works and services).

Main ways to increase profitability:

cheaper elements of advanced capital;

reduction of current production costs.

Ultimately, the condition for both is the widespread use in production of the results of scientific and technical progress, leading to an increase in the productivity of social labor and, on this basis, a decrease in the cost of a unit of resources used in production.

In a market economy, profit is the basis for the development of an entrepreneurial firm. In the Western economic literature, several theories of optimizing the activities of the firm are proposed, but they are not based on the principle of profit maximization. So, according to one theory, the goal of the firm should not be profit maximization, but sales. The firm is faced with the task of achieving and maintaining a certain level of profit for as long as possible. In this case, the firm will focus on the industry average rate of return, which is the result of intra-industry competition.

Indicators for assessing the economic efficiency of investment projects. Simple Methods for Evaluating Investment Projects. Complex (discounted) methods for evaluating investment projects.

Project efficiency analysis is based on simple (static) or complex (dynamic) methods.

Simple methods.

They are based on the assumption of equal significance of income and expenses for the project received at different time intervals:

1. Calculation of a simple rate of return.

2. Calculation of the payback period of investments.

Simple rate of return - an indicator similar to the return on capital indicator, however, its main difference is that the simple rate of return (ROI - return on investments) is calculated as the ratio of net profit (P) for one period of time (usually a year) to the total volume capital expenditures in fixed and working capital (I):

The economic meaning of the Simple Rate of Return is to estimate how much of the investment costs are recovered in the form of profit during one planning interval. When comparing the calculated value of the Simple Rate of Return (ROI) with the minimum or average level of return, the investor can draw a conclusion about the feasibility of this investment, as well as whether to continue the analysis of the investment project. In addition, an approximate estimate of the payback period of the investment project is possible here.

In order for the Simple Rate of Return to be used to evaluate the entire investment project, it is advisable to choose the most typical (or normal) planning interval to determine it, since the value of the Simple Rate of Return depends on which period is chosen to calculate the value of net profit . In most cases, this may be a period in which the project has already reached the planned level of production or full development of production capacity, but still continues to repay the original loans. If the calculation is done for a year, then they take the year the enterprise reaches its design capacity.

Advantages: simplicity and availability of calculation. However, with its help it is not always possible to accurately determine the average level of profitability over the entire billing period of the enterprise, especially for IP with a long construction period and an uneven income of P over the years of their activity.

aim commercial activities is to make a profit, so economics much attention is paid to its analysis.

The possibility of development of the organization in the long term depends on the level of net profit.

Definition of net profit, its meaning and characteristics

profit is a positive result between costs and revenues received for a certain period of time.

This is an important indicator that characterizes the business in the market, the efficiency of using the company's capabilities and the quality of the final product. The profit of the enterprise is one of the sources of formation of budget revenues that support the welfare of the country.

The management of the company has net profit, which represents the financial result after payment of payments to the budget, payment of dividends to shareholders.

This financial result characterizes the stability of the company in the market, allowing it to attract investors, thereby reducing the risk of bankruptcy. Socially responsible organizations allocate resources from net profit to raise wages and pay bonuses to employees.

The need to classify financial results lies in the fact that at different stages of activity are used various methods definitions arrived. Conducting an analysis of each type separately allows you to identify problems at an early stage.

In economics, profit is classified according to various factors.

Main classification directions:

type of activity (production, provision of services);
profit period (year, quarter, month);
type of business operations (rent, investment activities, work with securities);
income grouping method (economic, accounting, operating, non-sales).

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Calculation formulas

Each type of business profit characterizes efficient use of enterprise resources, allows management to make decisions for further development.

Gross

Gross profit characterizes the efficiency of managing the enterprise's funds and is calculated by the formula:

VP \u003d B - SP

where VP - gross profit, B - revenue, SP - cost.

When calculating the costs of production of goods (services), the cost of goods (services), taxes paid to the budget (except for income tax), wages employees and other indirect costs related to the production process.

operating room

This type of profit is the financial result that the company received in the course of its core activities.

The calculation formula is as follows:

OP \u003d B - SP - OR - A

where OP is operating profit, B is revenue, SP is cost, OR is operating expense, A is depreciation.

In some sources, you can find the statement that operating profit and EBIT are one and the same, but this is a misconception. These indicators are calculated before tax, however, when calculating EBIT, not only expenses from core activities are taken into account. While, the operating financial result does not include investment income, including funds received from subsidiaries.

When making a decision, lenders pay attention exclusively to the calculation of operating profit, since it is this profit that shows the efficiency of the company's main production.

balance sheet

Balance sheet income represents the income that the company received from the sale of the main activity and other.

The calculation formula is as follows:

BP \u003d V - SP - PR + PD

where BP - balance sheet profit, PR - other expenses, PD - other income.

Calculate this species income can be using the indicator of gross profit, reducing it by other expenses and adding income from other sources. The data for the calculation are taken from the income statement.

From sales

An important indicator of the company's performance is the profit from sales, since revenue is cleared from the costs of selling products and paying funds to managers.

The calculation has the following form:

Profit from sales \u003d B - Kr - Control

where Кр - commercial expenses, Ср - administrative expenses.

This type of company's income is corrected by reducing costs, or by increasing the volume of sales of products on the market.

taxable

According to the Russian Tax Code, entrepreneurial activity subject to taxation, in connection with this, in financial accounting, such a category of profit is distinguished as taxable income. During the calculation, this type of income is reduced by the level of expected benefits for a particular type of activity.

Calculation formula:

NP \u003d VP - SVP - I - A + PR

where VP - gross profit, SVP - adjusted VP, I - costs, A - depreciation, Pr - increase in assets.

margin

This type gives an idea of the company's coverage of fixed costs and the formation of net income, is calculated as:

M \u003d B - PZ

where B - revenue, PZ - variable costs.

If a company is issuing different types products, this type of profit will identify the most cost-effective in terms of profitability.

Unallocated

Retained earnings are reflected in the balance sheet and represent income that has not been distributed by the owners of the company. AT Russian system accounting accounted for on account 84.

Calculated according to the formula:

NP = NP + D - Div

where NP - retained earnings, D - income of the current period, Div. - dividends.

Retained earnings are part of the company's equity and indicate that shareholders did not use these funds to replenish assets.

Estimated

Estimated profit is calculated on the basis of future expenses and income for implementation economic activity companies. According to the legislation of the Russian Federation, the calculation of the estimated profit is carried out as a percentage and has the form:

Ni \u003d (SP - Z) x 100%

where SP is the expected profit, Z is the cost.

The estimate is drawn up at the conclusion of contracts with the customer, unforeseen expenses are not taken into account as part of the profit.

economic profit

This type of profit is the financial result that remains at the disposal of the organization after taking into account all expenses and payment of tax liabilities and the income received.

EP = TR - TC

where TR is the income received, TC is the sum of all expenses.

When calculating economic profit, all expenses, including long-term ones, are taken into account.

Algorithm and formulas for calculating net profit

The ultimate goal of any commercial activity is to make a profit, the absence of this indicator leads the company to exhaust its resources and bankruptcy. Positive dynamics, on the contrary, allows replenishing working capital, forming reserves and developing production.

Calculation net profit carried out on the basis of the income statement. The calculation algorithm is that variable costs are deducted from the sales proceeds, resulting in a marginal profit. Decrease by fixed costs, we get operating profit, the reduction of which for other expenses gives profit before tax. At the end of the calculation of net profit, the indicator is reduced by tax and other deductions to the budget.

Russian accounting practice also applies formula definitions of net profit:

PE \u003d FP + VD + OD - N

where FP is profit, IA is gross income, OP is operating income, and T is taxes.

Currently, companies that cooperate with foreign countries used in financial accounting international standards, according to which net profit is formed as:

+ Tax expenses
– Income tax that is refunded
(+ contingencies)
(- windfall income)
+ Interest payable
– Interest receivable
=EBIT
+ depreciation
– Revaluation of assets
= EBITDA

Distinctive features of EBITDA and net profit indicators are discussed in the following video:

The procedure for calculating the rate of return

The rate of profit is the ratio of profit for reporting period to the advance payment at the beginning of the period, otherwise it is called the rate of return on assets or investments.

This indicator is calculated as:

Np \u003d Pv / Yes x 100%

where Yes - advanced funds; Pv - profit.

Advances are the sum of production costs and labor costs.
In other words, the rate of return is the level at which the invested capital in the enterprise has increased at the reporting date. Its normative value is the achievement of 50%, 100% refers to excess profit.

The rules for calculating profits are set out in this video:

Analysis of the results

To analyze the results of net profit, we use a number of methods:

vertical and horizontal the analysis is carried out on the basis of changes in reporting items;
trendy allows you to track the change in the indicator in dynamics, comparing the reporting period with the previous or base one.
factorial, this method based on coefficient calculation.

Relative value (indicator) of dynamics- represents the ratio of the level of the phenomenon or process under study for a given period to the level of the same process or phenomenon in the past.

Dynamic indicator = Level of the current period / level of the previous period

The relative value of the dynamics characterizes the intensity, structure, dynamics of economic phenomena, shows how many times the current level exceeds the previous (basic) one. The amount of dynamics is called growth factor, if expressed as a multiple ratio, or growth rate if expressed as a percentage. The relative value of the dynamics characterizes the rate of development of the phenomenon or the rate of change of the phenomenon over time.

Growth rate is the value of the dynamics expressed as a percentage.

Rate of increase is the amount of increase in the relative magnitude of the dynamics in percent.

Example: in 2007 the number of employees was 120 people. in 2008 130 people.
Solution:
ATS \u003d (130 / 120) * 100% \u003d 108.3% - 100% \u003d 8.3%.
The number of employees in 2008 increased by 8.3% compared to the previous year.

Chain and Base indicators of dynamics

There are relative values with a constant and variable base of comparison:

If the comparison is carried out with the same level taken as the base, then the relative values of the dynamics with a constant base ( basic).
If the comparison is made with the previous level, then the relative values of the dynamics with a variable base are obtained ( chain).

Basic- characterize the phenomenon for the entire period of time under study as a whole. First level is taken as the base, and all other periods are compared with the base.

Chain- characterize the development of the phenomenon within the studied period of time. Each subsequent period is compared with the previous one.

There is data on the number of unemployed in the Russian Federation:

Solution:

To calculate relative values with constant base of comparison Let's take the level of 2004 as the base:
(7,0/8,9) * 100% = 78,6
(5,1/8,9) * 100% = 57,3
(6,3/8,9) * 100% = 70,8
(5,6/8,9) * 100% = 62,9

Relative values with variable base of comparison:
(7,0/8,9) * 100% = 78,6
(5,1/7,0) * 100% = 72,9
(6,3/5,1) * 100% = 123,5
(5,6/6,3) * 100% = 88,9

Relationship between basic and chain indicators of dynamics

The product of all relative values with a variable base of comparison is equal to the relative value with a constant base of comparison for the period under study: 0.786*0.729*1.235*0.889 = 0.629
The ratio of the subsequent value of the dynamics with a constant base to the previous indicator of the dynamics with a constant base is equal to the corresponding value of the dynamics with a variable base of comparison: 0.708 / 0.573 = 1.235

Net profit of the enterprise. Formula. Methods of analysis and purposes of use

Return on Sales Ratio in Excel

The degree of economic efficiency of a financial, labor or material resource characterizes such a relative indicator as profitability. It is expressed as a percentage and is widely used to evaluate the performance of a commercial enterprise. There are many types this concept. Any of them is the ratio of profit to the asset or resource under study.

The essence of the concept of profitability ratio

The profitability ratio of sales shows the business activity of the enterprise and reflects the efficiency of its work.

Net profit and formula for its calculation

Evaluation of the indicator allows you to determine how much money from the sale of products is the profit of the company. What matters is not how much product was sold, but how much net profit the company earned. With the help of the indicator, you can also find the share of cost in sales.

The profitability ratio of sales is analyzed, as a rule, in dynamics. An increase or decrease in an indicator indicates various economic phenomena.

If profitability increases:

The increase in revenue occurs faster than the increase in costs (either increased sales volumes, or changed the assortment).
Costs are declining faster than revenue is declining (the company has either raised product prices or changed the assortment structure).
Revenue is growing, and costs are becoming smaller (prices have increased, assortment has changed, or cost rates have changed).

The first two situations are definitely favorable for the company. Further analysis is aimed at assessing the sustainability of this situation.

The second situation for the company cannot be called unambiguously favorable. After all, the profitability indicator has improved formally (revenue has decreased). To make decisions, analyze pricing, assortment.

If profitability declined:

Costs are rising faster than revenue (due to inflation, price cuts, increased cost rates, or changes in product mix).
The decrease in revenue is faster than the decrease in costs (sales fell).
Revenues are getting smaller and costs are getting bigger (cost rates have increased, prices have gone down, or the assortment has changed).

The first trend is clearly unfavorable. An additional analysis of the causes is needed to correct the situation. The second situation indicates the desire of the company to reduce its sphere of influence in the market. When a third trend is found, pricing, assortment, and cost control systems need to be analyzed.

How to Calculate Return on Sales in Excel

The international designation of the indicator is ROS. The return on sales ratio is always calculated from the sales profit.

Traditional formula:

ROS = (Profit/Revenue) * 100%.

AT specific situations it may be necessary to calculate the share of gross, balance sheet or other profit in revenue.

Gross return on sales (margin) formula:

(Gross Profit / Sales Proceeds) * 100%.

This indicator shows the level of "dirty" money (before all deductions) earned by the company from the sale of products. The elements of the formula are taken in monetary terms. Gross profit and revenue can be found in the income statement.

Information for calculation:

In the cells for calculating the gross margin, set the percentage format. We enter the formula:

Gross profit margin for 3 years is relatively stable. This means that the company carefully monitors the pricing procedure, monitors the product range.

Return on sales by operating income (EBIT):

(Operating profit / sales revenue) * 100%.

The indicator characterizes how much operating profit falls on the ruble of revenue.

((p. 2300 + p. 2330) / p. 2110) * 100%.

Data for calculation:

Calculate the operating profit margin - substitute the references to the required cells in the formula:

The formula for return on sales by net profit:

(Net profit / revenue) * 100%.

Net profitability shows how much net profit falls on the ruble of revenue. Both figures are taken from the income statement.

Let's show the profitability ratio of sales on the chart:

In 2015, the indicator is significantly reduced, which is regarded as an unfavorable phenomenon. Additional analysis of the assortment list, pricing and cost control systems is needed.

A value above zero is considered normal. A more specific range depends on the field of activity. Each company compares its profitability ratio of sales and normative value by industry. It is good if the calculated indicator practically does not differ from the inflation rate.

Andrey Lipov

Each payment on your loan consists of a part that goes as interest to the bank, and a part that goes to pay off the body of the debt. The calculation of the balance of your debt depends on the scheme of its repayment:

In the case of differentiated payments, everything is extremely simple: divide the total amount by the number of months of the loan and multiply by the number of payments made.
Calculation of the net profit margin (formula)

Subtract the resulting figure from the loan amount and you will see the current balance.
In the case of an annuity scheme, the payment structure changes each time. To calculate the balance, you need to create a payment schedule. Read about it below.

Loan balance calculator

This calculator will calculate the balance of the body of debt in a simple case, not taking into account early repayments or penalties for late payments.

You just need to remember the main parameters of the loan and enter them into this form:

If you paid your loan exactly on schedule, did not make early repayments and did not allow delays, then you can find out the balance of the debt on the loan using the calculator presented above.

If you had any of the listed options for repayments, fines, etc., it will be easiest to contact the bank in one of the following ways:

1. Internet banking

This is the most convenient way that almost all modern banks provide. It requires a username and password to access it. They are issued either by a bank clerk when applying for a loan, or you can get them at any time later by contacting your bank. As a rule, this service is absolutely free, but just in case, check this point.

2. By phone

Call your bank's help desk. Numbers starting with 8-800 are free throughout Russia, even if dialed from a mobile phone. Before calling, have your passport and loan agreement ready. Most likely you will be asked to name the details of these documents.

3. Personal visit

Of course, no one forbids you to simply come to the bank and ask the clerk to tell you about the current balance. You will only need to have your passport with you. A copy of the loan agreement is kept at the bank, so there is no need to carry it with you.

Of course, the third option is the longest, but if you have already gone this way, at the same time take the login and password for the Internet bank. In the future, it will be more convenient to find out the balance of the debt on your loan using option number 1.

If you are interested in how to find out the balance of a loan debt using annuity scheme calculations, you can read the article on scheduling payments.

Read also whether it will be profitable to take a loan for early repayment of the balance on the current loan.

Your friends will benefit from this information. Share with them!

Rate of return is the ratio of profit to total capital advanced or to production costs, expressed as a percentage. It characterizes the efficiency of the use of capital, the profitability of the enterprise. In financial management, the rate of return is often referred to as profitability.

Rate of return formula

Rate of Profit = Mass of Surplus Value / (Constant Capital + Variable Capital)

Net profit margin

The net profit rate characterizes the level of profitability of the economic activity of the organization. The net profit margin is measured as a percentage and is defined as the ratio of net profit to revenue (net).

Analysis of the net profit margin is carried out in the FinEkAnalysis program in the FCD Analysis block in order to identify signs of deliberate bankruptcy.

Estimated rate of return

Estimated rate Profit is the return for a period divided by the average investment made in that period.

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