In other words, this indicator reflects the growth of capital (production assets) that were invested in the production of goods and services. When it advances to include the cost of production and wages to the workers. Usually the rate of profit is calculated for a year.
Such a ratio clearly gives a description of the activities of the company. The rate of profit is determined by two groups of factors: internal and market. The main factor determining it is the mass of profits. All that leads to an increase in the latter will not affect the degree of profitability of the business.
The rate of profit also depends on the composition of the capital advanced in production, in particular the specific weight of the wage workers. For example, two companies invested the same amount of money in production, but one of them spent more money on hiring labour. Then here, provided that other factors remain unchanged, will be obtained more profits and, therefore, will be higher and its normal.
Annual rate of return depends on the rate of turnover used in the production process. With increasing turnover rate, the spent money is returned to the owner of the business faster. In this case, increase the volume of production, increases profits, and hence the efficiency of the company.
The increase of the considered indicator contributes to the cost savings of the means of production. To save them, using advanced technology, increasing the number of shifts per day. Resulting production costs are reduced, which increases the profit of the company.
The rate of profit also depends on the fluctuations of market prices and macroeconomic conditions in General. Its functionality lies in the fact that firms-monopolists use this indicator for setting and regulating prices. On the other hand, for companies the rate of profit regulates the relationship between supply and demand, in cases where this ratio has big difference in different industries.