An analysis of income and profitability: the basic techniques and methods.

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effect on the activity of any enterprise is characterized by the resulting gains or losses.Profit obviously an absolute figure, and its relative value is determined by using the margins.Make any conclusions only banal calculated indicators it is difficult, so it is advisable to analyze the income and profitability of the company.

There are many methods of analysis, but we will look at a few.The first of these is a horizontal analysis of profit and profitability.It is the study of changes in these indicators in the framework of a single enterprise over time.In other words, using figures for several periods, it is possible to determine their absolute and relative changes, which will identify the main trends in both profits and margins.With regard to profits, the horizontal analysis can be carried out not just one indicator, and on the profit and loss account as a whole.In this case it is possible to evaluate not only how the profit itself, but also the factors that affect it.

Furthermore, it should affect the fact that the aforementioned report could be subjected to vertical analysis, i.e. analysis of the structure.With it, you can track changes in the share of revenues and profits, and the cost, and taxes, as well as other factors that affect the formation of profit.

Speaking of factors.An analysis of income and profitability of the organization, referred to as the quotient, is an extremely popular method because it allows to identify, for example, the main problems that caused decline in profits.This type of analysis of profit convenient to carry, also based on the profit and loss account.The fact that it reflects the process of formation of profit and makes it easy to build a mathematical model, which can be quite simple to analyze.In this case, should be examined in more detail the impact on profit earnings, as it, in turn, also depends on two factors - price and sales volumes.Their influence should be reflected separately.

Factor Analysis of profit margins in traditional formulas usually associated with DuPont, which by the method of absolute differences reveal the influence of factors on the return on assets (assets) and equity.Before using this method is useful to convert a few mathematical models of these kinds of cost-effectiveness, in order to identify the factors, the impact of which will be evaluated.Simple transformations lead to the conclusion that the return on assets is based on their turnover and profitability of sales, and efficient use of shareholders' equity in addition influenced by leverage ratio.

this type of analysis can be subjected to any measure of profit and profitability, nothing will prevent you, for example, to do the necessary calculations and carry out factor analysis of the profitability of the staff.Just in case you have to convert the mathematical model of their own, to take into account the factors and avoid the use of predefined formulas.Of course, this type of analysis will also require information for several periods, at least two.

described techniques traditionally the analysis of the income and profitability of the enterprises of the real economy.However, with certain transformations, you can also make an analysis of the profitability of a bank or other financial institution.In this case, the difference is not so much in the methods of analysis, as they are still fairly common, namely the structure of the indicators that you will be subject to analysis.