# The formula of return - the key to success in business

Of all the performance of the enterprise one of the most important is profitability.It is not surprising, because it can disturb a businessman more than the rate it receives profits?Naturally, in order to calculate this figure, the formula required profitability.For information on how to calculate it, we describe in this article.

profitability formula is very simple, but before we proceed to its consideration, it is necessary to define a calculated measure.According to economic theory, the margin is a measure of the economic efficiency of an action, the use of an asset or the enterprise as a whole.Accordingly, in every case, the formula will vary profitability.You can divide the indicators of economic efficiency into three groups:

1. By types of assets - calculated the profitability of each of the assets held by the company: fixed assets, financial instruments, personnel and so on.In this case, the maximum margin is calculated simply by dividing net income by the value of an asset.
2. By types of economic activity - estimated profitability of the commission of certain transactions.Most often estimated return on sales, ie the ratio of profit to revenue.Thus, we see how many cents of profit brings us each received from the sale of the ruble.
3. Profitability - the formula is not one but several: this includes the whole range of the above figures, plus the so-called total return, which is calculated as the ratio of net profit to the enterprise value (the currency of the balance sheet).

As you can see, nothing complicated in terms of profitability is not - most often it is calculated by simply dividing.This indicator is widely used both in business planning, and in analyzing the results of the company.In the case of the ex post facto analysis, we are dealing with an already generated index, and when writing a business plan, we only try to guess what will be the future of our profits.In this case, it is logical to assume that margins will be affected by the following factors:

1. production costs - as shown by the formula of profitability, distribution cost are in the denominator, hence its increase reduces the target
2. selling price of the goods - the higher it is, the more profitwe get.We should not forget that the pricing is also influenced by the laws of supply and demand, which means that we can not adjust the margins only by changing the pricing policy.
3. situation on the market - depending on the type of market (monopoly, competitive, oligopolistic) will change, and the rate of profit.The less competitive the market, the company has a lot of power, and, consequently, the greater the profitability it can count.Strengthening the competition, on the contrary, can cause companies to reduce profitability.An extreme case is the dumping, in which the company puts such low prices that some time working at a loss, but in a way destroys his competitors.

Conclusion: The formula for calculating margins is simple and clear, but the study of this indicator and, more importantly, its management is a complex process that requires a lot of attention and meticulously.Cost-benefit analysis in the intervening period provides the opportunity to evaluate the effectiveness of the company and is the basis for the prediction of profitability in the future, and that this figure shows the feasibility of further implementation by their activities.

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