Instruction

1

The formula of ROI:

R = (P / E)*100%, where

P – useful end results in monetary terms.

E – the cost of achieving this result in terms of money.

It should be noted here that. In relation to the business or activities of private entrepreneurs , profitability is calculated for a certain period of time – usually a month, quarter or year. In this case, the final outcomes and costs over a selected time interval exactly match the balance sheet figures for the corresponding period (income and consumption respectively). The same is true regarding groups of companies and even industries – however, there will often have to resort to statistical estimates and errors.

R = (P / E)*100%, where

P – useful end results in monetary terms.

E – the cost of achieving this result in terms of money.

It should be noted here that. In relation to the business or activities of private entrepreneurs , profitability is calculated for a certain period of time – usually a month, quarter or year. In this case, the final outcomes and costs over a selected time interval exactly match the balance sheet figures for the corresponding period (income and consumption respectively). The same is true regarding groups of companies and even industries – however, there will often have to resort to statistical estimates and errors.

2

Take for example a small Agency that sells tickets for concerts and performances. It is necessary to calculate its quarterly profitability.

The Agency acts as an intermediary and has no need to print your tickets. Work: Director, accountant, 12 staff and 70 freelance distributors of tickets, and 4 drivers with own transport. From time to time, the Agency enlists the aid of a legal Agency.

The Agency has a sales office.

The Agency acts as an intermediary and has no need to print your tickets. Work: Director, accountant, 12 staff and 70 freelance distributors of tickets, and 4 drivers with own transport. From time to time, the Agency enlists the aid of a legal Agency.

The Agency has a sales office.

3

Let the total Agency expenses for the quarter are:

Payroll 1.35 million RUB;

Charges, taxes, payment of 1.2 million rubles

Rent, bills and entertainment expenses – of 1.74 million rubles.

Total: 1,35 + 1,2 + 1,74 = 4.29 million RUB

Even for a quarter of the tickets sold for 34 concerts with a total sum of 154 million rubles., of which the intermediary Agency has a percentage of 12%.

For the quarter was also received income securities 0,54 mln. RUB.

Other income in cash, the company came to 1.4 million.

Total: (154*12% = 18,48) + 0,54 + 1,4 = 20,42 million.

Payroll 1.35 million RUB;

Charges, taxes, payment of 1.2 million rubles

Rent, bills and entertainment expenses – of 1.74 million rubles.

Total: 1,35 + 1,2 + 1,74 = 4.29 million RUB

Even for a quarter of the tickets sold for 34 concerts with a total sum of 154 million rubles., of which the intermediary Agency has a percentage of 12%.

For the quarter was also received income securities 0,54 mln. RUB.

Other income in cash, the company came to 1.4 million.

Total: (154*12% = 18,48) + 0,54 + 1,4 = 20,42 million.

4

The profitability of the Agency during the quarter is:

R = 20,42 / 4,29 = 4,76, or 476%.

R = 20,42 / 4,29 = 4,76, or 476%.

# Advice 2 : How to calculate the profitability of the company

To assess the effectiveness of economic activity of the enterprise is used to calculate rates of return, which are also called profitability. The overall performance of the company reflects the profitability of the enterprise. How to calculate it?

Instruction

1

Indicator of company's profitability demonstrates how effectively used in its activities, all property assets of the company, namely, fixed and current assets. Or to be more precise, the meaning of profitability ratio is to calculate the amount of profit received by the company upon investment of 1 ruble in its production funds. In order to calculate the profitability of an enterprise should use the following formula:

RP=BP/(Appsr.+SRF.)

where RP – the profitability of the enterprise;

BP – balance (accounting) profit received in the reporting period.

Oasr. – average cost of non-current assets, calculated during the reporting period;

SRF.- the average value of current assets, calculated during the reporting period.

RP=BP/(Appsr.+SRF.)

where RP – the profitability of the enterprise;

BP – balance (accounting) profit received in the reporting period.

Oasr. – average cost of non-current assets, calculated during the reporting period;

SRF.- the average value of current assets, calculated during the reporting period.

2

Balance (accounting) profit is the profit received by the enterprise at the end of the reporting period, which is the basis for calculation of income tax. In other words, it is the company's profit before tax. To calculate this figure, you need the amount received from the sale of goods and services revenue to remove:

- cost of goods sold or services provided;

- administrative and commercial costs;

- balances from operations;

- balance from non-operating activities.

- cost of goods sold or services provided;

- administrative and commercial costs;

- balances from operations;

- balance from non-operating activities.

3

To calculate the average value of the production assets of the enterprise it is necessary to know the carrying value of these assets at the end of the period and at its beginning. Next, using the formula calculate simple average values, to calculate the average cost of property of the enterprise in the reporting period.

Useful advice

To calculate the profitability of the enterprise, using such documents as "Accounting balance" (Form №1) and profit and loss statement (Form №2).

# Advice 3 : How to calculate profit and profitability

Profit and profitability are the most important economic categories and indicators of the effectiveness of economic activity. Profit it is the excess of revenues over expenditures (in monetary terms), and that is what the profit shows, it is advantageous if the conduct of any activities or not.

Instruction

1

So, first we will understand what profit and profitability. Profit is the monetary expression of the final financial result of enterprises and the profitability is a relative measure that reflects the same financial result.

One of the main theories explaining the emergence of profit is the theory of surplus value developed by K. Marx. Marx says that surplus value is transformed into net profit after a sales record is created at the stage of production of the specific commodity "labor force". Surplus value is the value that is created by hired labor above the cost of his labor (i.e. salaries) and appropriated by the capitalist.

However, the profit is not equal to surplus value, because part of it goes to pay salaries to workers and to cover other costs: interest on the loan, taxes, rents. So the profit is called the transformed form of surplus value.

One of the main theories explaining the emergence of profit is the theory of surplus value developed by K. Marx. Marx says that surplus value is transformed into net profit after a sales record is created at the stage of production of the specific commodity "labor force". Surplus value is the value that is created by hired labor above the cost of his labor (i.e. salaries) and appropriated by the capitalist.

However, the profit is not equal to surplus value, because part of it goes to pay salaries to workers and to cover other costs: interest on the loan, taxes, rents. So the profit is called the transformed form of surplus value.

2

Distinguish between gross (total) and net profit (the amount remaining after the payment of costs and payment of required taxes and deductions).

Gross profit is calculated as follows:

Gross profit = Net revenue from sales of goods and services — Cost of goods sold or services

Net profit (RAS) is calculated as follows:

Net profit = gross profit — the Sum of production costs — Sum of taxes, fines and penalties, interest on loans.

Gross profit is calculated as follows:

Gross profit = Net revenue from sales of goods and services — Cost of goods sold or services

Net profit (RAS) is calculated as follows:

Net profit = gross profit — the Sum of production costs — Sum of taxes, fines and penalties, interest on loans.

3

Profitability is a relative measure of economic efficiency (%). A ratio of profitability calculated as the ratio of profits to assets (resources), its formative.

There are many indicators of profitability: return on fixed assets, return on assets, return on equity, return on sales, profitability, etc. let us Consider the last two indicators.

The return on sales shows a share of the profits earned in each currency and calculated:

Profit margin = Net profit / sales

Profitability of production shows, how many monetary units of net profit the company receives from each monetary unit spent on production and sales. Calculated:

Profitability = Profit from sales / Amount of expenses on manufacture and production realisation.

There are many indicators of profitability: return on fixed assets, return on assets, return on equity, return on sales, profitability, etc. let us Consider the last two indicators.

The return on sales shows a share of the profits earned in each currency and calculated:

Profit margin = Net profit / sales

Profitability of production shows, how many monetary units of net profit the company receives from each monetary unit spent on production and sales. Calculated:

Profitability = Profit from sales / Amount of expenses on manufacture and production realisation.

Note

Enterprise analysis should be based not only on the study of the profitability indicators, the analysis must be complete and structured.

Useful advice

Check the financial status of the enterprise do not better than one person, but several, so as one man may make mistakes.

# Advice 4 : How to calculate profitability

Profitability is often considered as indicator of the efficiency of the enterprise, that is, the ratio of net profit to net costs. However, in practice the calculation of indicators

**of profitability**compounded by a number of reasons and additional parameters.You will need

- Calculator, Notepad and pen, accounting records for the activities of the organization

Instruction

1

Define the measure

**of profitability**(efficiency) of production activities. Otherwise this figure is called balance profitability:Profitability = balance sheet total net profit / (Average value of current assets + average fixed assets) * 100%.According to this formula, the rate will be slightly overestimated as in the balance sheet reflects the profit from all activities of the organization and not just from the manufacturing process. So are considered**indicators****of profitability**of total assets and an indicator**of profitability**of own capital.2

Calculate an indicator

**of profitability**of total assets. This parameter shows the efficiency of use of personal property of the organization and is calculated according to a formula:Return = (Balance sheet profit / balance sheet assets Amount)*100%.3

Calculate an indicator

**of profitability**of own capital. This parameter is an indicator of the efficiency of use of invested in the organization of capital and is calculated by a special formula:Profitability = (Net profit / equity capital) * 100%.This indicator, as a rule, interests of shareholders and investors.4

Calculate the profitability of products. In order to calculate the profitability of products as a performance indicator of the cost of sale or production, you must use the following formula:Profitability = (Profit from sales / total cost of products) * 100%.

5

Calculate the return on sales. Profit margin is an indicator which characterizes the efficiency of cost of sales. For its calculation we use the formula: Profitability = (Profit from sales (sales) / Cost of products sold) * 100%.

Useful advice

The correct calculation of the profitability indicators show the company detailed analysis of the competitiveness of its products in the market, and will also give a boost to increase volume sales and adjustments to the production process.

# Advice 5 : How to calculate the level of profitability

Indicators

**of profitability**is one of the main places in the analysis of financial and economic activities of the enterprise. Profitability imply the use of a medium enterprise, where it not only covers their costs but makes a profit.Instruction

1

In the analysis

**of profitability of**enterprises consider several indicators. Return on assets is the profit received by the organization to the average value of assets in percentage terms. This measure shows how much profit is obtained on each ruble advanced in production assets.2

ROI, or return on invested capital, to determine the effectiveness of the use of funds invested in the development of the firm. This indicator is calculated as the difference between the ratio of profit before taxation to balance sheet total (in percentage terms) and the amount of short-term liabilities.

3

Most often in the analysis of activity of the enterprise used indicator

**of profitability**of production. It is defined as the ratio of the profit of the organization, remaining at its disposal, and total cost of goods sold. Profitability of products shows how many cents of profit the company will receive for each ruble of investment costs. This indicator can be calculated as for the organization as a whole and in its units, as well as individual products. This coefficient depends on changes in the structure of sales, its cost and the level of sales prices.4

Another popular measure

**of profitability**is return on sales. It is calculated as the ratio of profit from sales the proceeds from its sale. Another of his name – norm of profitability. Profit margin shows what proportion of profit in total revenue. If at the enterprise the indicator in the dynamics is reduced, then it indicates a decrease in demand for its products and reduced competitiveness in the market.# Advice 6 : How to calculate the profitability of production

Profitability of production – one of the main indicators of production and economic activity of the enterprise. Analysis of the results of calculation of profitability of production allows to assess the overall situation at the plant and to take corrective solutions to improve values of this indicator. Improving profitability can be achieved by increasing the profits from product sales, cost reduction, and effective use of equipment. How to calculate profitability?

You will need

- - balance sheet

Instruction

1

Calculate the balance profit of the enterprise. Balance sheet profit is calculated as the difference between the company's income from operating activities and expenditures of the company for these transactions. The income of the enterprise can be divided into two groups: realizable and non-operating. The first group includes revenues from the sale of products or services, fixed assets (including land) and other assets. Non-operating income includes income from renting of property income from stocks, bonds, Bank deposits.

2

Calculate the average annual value of fixed assets of the company. Fixed assets is material assets involved in production, and in the process wear transfer their value to the manufactured products. The average annual value of fixed assets is determined as follows: need to add half the cost at the beginning and end of the year, the full value of fixed assets at the beginning of all months of the year and the amount received divided by 12.

3

Determine the average annual cost of working capital. Working capital is the funds that the company uses in its production-economic activities. The average annual cost of working capital can determine the folding of the average annual value of inventories, WIP, semi-finished products of own production and expenditure in future periods. Data for calculation can be found in the company's balance sheet during the reporting period.

4

Calculate the profitability of production. Profitability is calculated as the quotient of the balance sheet profit of the enterprise for the sum of the average annual value of fixed assets and average annual cost of current assets.

# Advice 7 : How to calculate rate of return

The norm

**of profitability**or internal rate of return is the rate of return generated by the investment. This is the discount rate at which net present value of the investment equal to zero or if the net investment income equals the investment cost of the project.Instruction

1

To determine the

**rate****of profitability**of investments, it is necessary to solve the following equation:?(СFm/(1+IRR^m) = I, where:- СFm – input cash flow in period m; IRR – internal rate of return (the rate**of profitability**of investment);- I – the value of the investment.2

The meaning of this indicator is that it shows the maximum allowed relative level of expenditure that can be spent on this project. For example, if the project is fully financed by a Bank loan, the IRR value shows the upper limit interest rate on it. If the value of the interest rate will be higher values were found, the project will be considered unprofitable.

3

Knowing the magnitude of the norms

**of profitability**, you can make a decision on the admissibility of the investment project. If IRR is higher than or equal to the cost of capital, the project is accepted, if less than cost of capital project rejected. Thus, the norm**of profitability**is "borderline" indicator": if the value of the investment is higher internal rate of return, the result of the project, it is impossible to provide a refund and their impact, and thus the project should be rejected.4

The main advantage of this indicator lies in the fact that in addition to determining the level

**of profitability**of investments it allows to compare projects of different scale and different durations. After all, the norm**of profitability**is calculated in percentage, and relative values are easier to interpret. In addition, this indicator provides an opportunity to determine the safety threshold for the project.5

However, note that this indicator has some disadvantages. First, this is an unrealistic assumption about the rate of reinvestment, since it involves the reinvestment of earnings at the rate of IRR, which in practice is rarely feasible. Second, it is possible to obtain multiple values of IRR in the case where there is an interchange of cash inflows and outflows. In addition, this indicator is very sensitive to the structure of the stream of payments and does not always evaluate mutually exclusive projects.

# Advice 8 : How to calculate overall profitability

In the process of activity of the enterprise must not only maintain records of business transactions, but also to carry out economic analysis of the final results. The analysis uses a different methodology, calculated economic indicators and, in particular, is determined by the overall profitability. This index characterizes the economic efficiency of the company during the reporting period.

You will need

- - the balance sheet of the company for the analyzed period(form No. 1 of financial statements);
- - report on profit and loss for the same period(form №2 of financial statements).

Instruction

1

Determine the gross profit of the company for the analyzed period. The value of the amount of gross profit you take from the form №2 "Report about profits and losses"(line 29) financial statements.

2

Determine the average value of fixed assets as follows. In the balance sheet take values in line 120 "fixed assets" at the beginning and at the end of the period. Add up these two numbers. Divide the sum by 2.

3

Calculate the average value of current assets. They include inventories, work in progress and deferred expenses. Fold the data at the beginning and at the end of the period on the line 210 "Reserves" of the balance sheet. Divide the sum by 2.

4

Use the formula to calculate the total profitability robs=Pval/(Posn+Pobor)X100%, where:

- Pval - gross profit for the analyzed period,thousand RUB.;

- Fon - the average value of fixed assets in the analyzed period,thousand RUB.;

- Faber - average cost of current assets for the analyzed period,thousand RUB

- Pval - gross profit for the analyzed period,thousand RUB.;

- Fon - the average value of fixed assets in the analyzed period,thousand RUB.;

- Faber - average cost of current assets for the analyzed period,thousand RUB

5

Calculate the total return in the above equation, dividing the amount of gross profit to the amount of the average cost of fixed and current assets. Multiplying the resulting ratio by 100 to get the value of total profitability of the enterprises in per cent.

Note

Overall profitability characterizes the amount of profit that falls on each ruble spent fixed and current assets. The higher the ratio, the more effective use of production funds of an enterprise.