# Formula profitability of the enterprise

Any enterprise in the course of economic activity tends to profit from their activities.The ideal formula for any business is to get as much income and expenses for a minimum of resources.

## What used to evaluate?

To assess the activity of the enterprise using a variety of economic and financial indicators: production costs, the ratio of production profitability, margin sales, the turnover of funds, the movement of capital, as well as many others.For each indicator has its own method of calculation, for example, to determine the profitability of the formula is used profitability of the enterprise.

## profitability of production and enterprise

The term "margin" has German roots and means "yield."With the assessment of profitability can draw conclusions about the effectiveness of the use of funds in the company.But how to calculate profitability?

This indicator measures the profit, which was a producer on their unit costs.That is, for example, if the margin is 20%, the company received 20 rubles of profit for every ruble that was spent on the production of goods or the provision of services.The lower profitability, the company earns less than one standard unit of production.The data confirms the thesis formula profitability of the enterprise.

Trends also called profitability.In fact, it is possible to determine the efficiency and quality of management at the company, calculating the profitability of the main activities of the enterprise.The formula for the calculation is continued.If there are no rational use of resources of the enterprise, the margin will decrease.And with efficient and economical use of raw materials and other values ​​it will grow.

Formula profitability of production helps to know the level of profitability, by which you can judge whether it is advantageous to engage in such activities or need to convert production to a different channel.In other words, with the help of mathematics can prove expediency or disadvantage of doing this or that type of activity.

## profitability calculation formula

profitability of the enterprise, which will result in the form of interest, the following:

Rosno.= ((Operating profit) / (cost of production + General production expenses + administrative expenses)) * 100%,

where:

• Operating profit = (Income by main activity) - (cost of production + Obshcheproizvodstvennyeexpenses + administrative expenses).
• cost of production - is the direct cost of doing business (wage and salary accruals workers who are directly involved in the production process, the cost of the purchase and delivery of raw materials that are consumed in production and others.).
• Production costs - include energy costs, utilities, paper, janitorial services, salaries of staff who are not directly related to the production process, but not available in the service business processes (secretaries, technicians, cleaners, security guards and others)as well as other costs which can not be attributed to direct.
• Administrative expenses - the cost of maintaining administrative staff, holding meetings and conferences, encouraging employees for outstanding achievements, holding sports days and other events, trips to various conferences for the directors, as well as other costs incurred by the enterprise on the organization of the production process.

To see factor, formula profitability of the enterprise is calculated without multiplying by 100%.

In principle, this calculation is also suitable for other types of cost-effectiveness, but with some changes.For example, the profitability of the formula is as follows:

RPR.= ((The profit from the sale of goods) / (cost of production goods + Production costs for the production of goods + Administrative expenses for the production of goods)) * 100%.

## What level of profitability is considered normal?

first step is to consider the basic values ​​of the index of profitability.Return on core activities, the formula of calculation of which is shown above, it can take many different values.If the ratio is below zero, it shows that the company is spending money on the production of goods or services more than to earn on their sales.

coefficient of 0 indicates break-even point.This means that the company and make a profit, but does not bear the financial losses from their activities.

If profitability is higher than 0, the company operates currently in earnings.

Keep in mind that in different areas of business has a reasonable return on core activities, the calculation formula that says so.Any industry in which you want to cover and the risks faced by the manufacturer in various areas of its activities.

Russia is no exception.The enterprises that are engaged in different activities, profitability may be radically different.It is not always the enterprise with lower profitability will be less successful.This is for a number of reasons related to the turnover of capital and other features of the operation of enterprises in various industries.

## normal profitability in the field of construction materials and other manufacturing

Thus, in the industries of construction materials, as well as those that have a high potential for conveying to other countries, average margins are at the next level:

• operation of oil andgas (80-90%);
• production of cement products (80-85%);
• fertilizer (80-85%);
• production and processing of non-ferrous metals (60-65%);
• production of sheet metal products (35-40%).

## normal profitability in the banking sphere

In the area of ​​banking and financial institutions the following indicators are observed in Russia:

• clearing services (65-70%);
• service trade in the financial markets (55-60%);
• service registers the securities market (40-45%).

## normal profitability human consumption goods

production of goods that are consumed by the population, has the margins:

• manufacturing tobacco products (40-42%);
• brewing (25-30%);
• household appliances (20-25%).

## Pitfalls indicator of profitability

Despite the fact that the formula of profitability core business is quite simple and straightforward, to the final figure can not look straightforward.

methods of analysis of profitability, there are many that characterize a wide range of different types of its parameters.

First of all, it is important to evaluate and compare the sales volumes of the different periods, as well as to track the profitability of those periods.It often happens when a good and promising business becomes unprofitable because of the wrong approach to the assessment of the necessary volume of production and sales of goods and services.

For instance, the manufacturer of any product wanted to increase the profits of the enterprise, not by reducing production costs, and by increasing volumes of production.

Formula profitability of production while at the output shows that profitability may drop significantly or even be negative.What is the reason?Many factors.There is always a chance of losing markets or the bulk of their failure.May worsen due to the sellers or simply the volume of products manufactured does not need the market, as demand is limited.In simple words, if there is nobody to sell the product, why it does not need to produce.In the case of excess production goods will simply lie in warehouses and ports.

should also take into account the rate of turnover of capital.For the first example, it is necessary to analyze the timing between the initial purchase of raw materials, and the point where the products manufactured for the money received.It will be a complete production cycle.Profitability of production of goods 1 can be, for example, 50%.If there is a period of high turnover products, as well as a limited production volume, the actual profits may be too small to pay for all operating expenses.That is the mark of profitability of 50% can not testify to the success of the company, but will simply describe the specifics of the industry and production methods.

## How to use the indicator of profitability of production?

course, profitability is one of the most important indicators, which can analyze the performance of the enterprise and to make any conclusions about the production process.

Analyzing the activity of any enterprise is not enough just to know how to calculate the profitability of its core activities, it should be remembered, and other indicators, as well as various methods of economic research.You can not remove the profitability of the whole system of indicators which it is included.This financial stability and liquidity, solvency, etc.In addition, it is necessary to carry out the vertical and horizontal analysis of the balance sheet, using financial indicators, such as the turnover of capital, the movement of assets.

Only then can fully assess the profitability index, determine the conditions of this level and how to effectively increase.