Financial diagnosis of any enterprise is exploring his work from different angles and perspectives.One of them is profitability, which showed that the level of efficiency of the company.The company's ability to generate profit, as well as the relative value of the profits must be subjected to the study, as they provide a glimpse of the company's development and also help to compare different companies with each other based on their performance.Let us consider in more detail how the calculated return on sales and profitability in general, and how they can be interpreted.
If we look at any rate of return, such as return on sales, we note that they are all completely calculated in an identical manner.Each of the indicators of this group is the profit margin, referred to the size of what is necessary to assess the profitability.The differences are, obviously, that is in the denominator, and that can use high performance gains.
For example, the calculation of return on sales can be carried out either by the sales profit, or the largest net profit.Ratio, calculated by the value of income from sales is characterized in that it describes the efficiency of production and distribution.However, the impact on profits of other factors, including income tax, in this case, is not considered.Take into account these factors can determine if the return on sales based on net income.In this case, the result will indicate the share of net income in each currency unit revenue.
It should be noted that the calculation of the profitability of sales made solely according to the profit and loss account.This suggests that both the numerator and denominator are defined in an identical manner, that is, represent a sum accumulated over a specified period.The reason that it is necessary to pay attention, is associated with other indicators of profitability, which is also calculated using data from the company's balance sheet.This form of reporting information is reflected on a specific date, which means that it can change during the period.This change should be taken into account, so, for example, return on assets should be calculated on the basis of the average for the period of the value of these assets.
calculation of return on sales, as well as any other measure of profitability, must be accompanied by analysis of the results.The simplest method, which, however, is a very useful and effective - is to conduct comparisons.Of course, you first need to analyze the dynamics of profitability within an enterprise, that is, we compare the results for multiple periods.This will determine the most significant trends that characterize the change in profitability.Then, if you have the necessary information, it is possible to compare the profitability of the enterprise under consideration with those of other organizations, as well as with the average values.In addition, it is useful to conduct a factor analysis of return on sales and other factors.This method allows not only to determine the change in the course of time, but also to identify the reasons for such changes.Specific procedures for such analysis has long been developed and successfully used to finance diagnostics.
indicators and analysis should be the only basis for the next stage - making management decisions.That decision and the necessary measures should be the result of the financial diagnosis of the company, to improve the situation in which the firm is located.
