How to determine the profitability of non-current assets?

Each financial manager should evaluate the results of the company.This will help draw conclusions not only about the effectiveness of his work, but also on the performance of the company that will come in handy when making future management decisions.Perhaps one of the most convenient and easiest ways to evaluate the effectiveness of a calculation and analysis of indicators of profitability.Due to the fact that the company is characterized by a huge number of parameters, these parameters is also quite a lot: return on assets, return on sales, and even, perhaps, a couple of dozen.

If we open the balance sheet, in the first section, see non-current assets.As a rule, this section is occupied most of the fixed assets, that is, the property that caters to the activities of the company over the long term.The remaining articles in this section are important, and so important is the measurement of the effectiveness of this property.This will help us to return on fixed assets.This indicator is similar to all the other terms of profitability: need to make a fraction, the numerator of which is the profit, and the denominator - the value of non-current assets.

simplest and most commonly used calculation is based on net income.As you know, the figure given in the profit and loss account.The peculiarity of this form of reporting and, consequently, all the indicators is that the information there is cumulative, that is, shows the values ​​for a given period.This fact is very consistent with the fact that the denominator is the value of assets contained on a certain date.This discrepancy may cause some errors in the calculations, which can be very significant.To most accurately determine the profitability of non-current assets required to establish their average price during the period and that its use in the calculations.If the information to determine the average value is not present, you can use the value of these assets at the end of the period, but the accuracy of this calculation, again, will be lower.

Now it's time to talk about the economic sense of this indicator.Return on non-current assets shows how much profit each ruble brings their value.In other words, this index allows to evaluate the effectiveness of the use of property, which requires company to operate sufficiently long period of time.

Obviously, in addition to non-current assets and current balance contains.Their profitability is also possible to easily determine, and the difficulties in calculating similar to those we have already discussed earlier.After calculating the profitability of each of the assets individually it makes sense to define the overall profitability of the entire property of the company, ie the efficiency of its use.

As for the analysis of these indicators, it is most often use the method of comparison.Comparisons can be done with the values ​​of the previous periods to identify trends.Also often compared to margins of one company from those of competitors, or simply similar enterprises, as well as with the industry average.It is worth noting that the analysis of this group of indicators are not applicable regulatory comparisons due to the fact that the standards have not been established for them.

By elementary transformations calculation formula, that is, the mathematical model, it is possible to determine the factors that affect the profitability of a particular index.After that you should calculate the separate effect of each factor.This procedure is called factor analysis and it can be subjected to the return on fixed assets and working capital, and all together.