firm performance can be defined in absolute terms, and relative.The absolute measure of effectiveness, without a doubt, is the profit, and to assess its relative size can be achieved by calculating the margins.To study the effectiveness of the company and the wording of any management decision is likely to be insufficient simply to calculate these figures.More significant results can be achieved if an analysis of profit and profitability.In this context, it makes sense to focus on the basic analysis techniques that can be helpful.

One kind of analysis is the factor analysis of profit and profitability.This analysis is based on a study of a model describing the impact on the profit factors such as production volume, price and unit cost.The model parameters are related as follows: Profit is defined as the product of the sales (in tonnes, pieces, etc., that is, in natural units) by the difference between the price and unit cost.If you have information for several periods or planned and actual performance is determined by the isolated effect of each factor on the amount of profits.In most cases, resorted to the method of chain substitutions or modifications.With regard to cost-benefit analysis, in this case, the model is supplemented as follows: the above earnings by the cost (sales by product unit cost), and by simple manipulations can be concluded that the margins only affect the price and unit cost.Further analysis carried out in the same manner.

The above method does not take into account the heterogeneity of the cost of production, ie the presence in it of the fixed and variable parts.To perform a more accurate study, carried out the analysis of the profit margin and profitability.This name is due to the fact that the profit in this case is determined by the difference between the commercial margin and the amount of fixed costs.In turn, the commercial margin (contribution margin) represents revenue less the sum of the variable costs.To more easily can be taken into account the influence of factors, the amount of coverage is presented as a work in sales and the difference between price and variable costs identified by one.

As you can see, the described model allows to take into account not only a greater number of factors, but also an increasing number of links between them.Profitability in this case, as represented by the ratio of profit costs.How to reflect the profit we have already sorted out, and the cost is expressed as the sum of fixed costs and variable costs of the product and unit sales.It described both models to study the effect of factors method is used, which we have already mentioned - chain substitutions.

However, the easiest way to carry out a horizontal analysis of profit and profitability, which implies a study of changes in performance over time.To do this, you need to calculate both absolute and relative changes.Recent often represented as a dynamic factor.Of particular interest is a comparison of the rate of profit growth and the rate of growth of assets.If the profit is growing faster than assets, then we can talk about improving the efficiency of otherwise - the efficiency is reduced.

course, analysis using the methods described above is necessary.Depending on the available information or on what level you are willing to tolerate uncertainty, you have a choice between the traditional factor model and margin analysis.In addition, it should be noted that the factor analysis can be made on the basis of the financial statements of the company, namely, the profit and loss account.In such a case will be studied the effect of several other factors, such as commercial and administrative expenses, taxes, other income and expenses.