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 return on equity

Analysis of profitability

**of capital**necessary for the adequate evaluation of possible earnings for investment in the company. From the value of this index depends on the investment attractiveness and the level of dividends to the organization in the cost benefit analysis to determine**the profitability of**a private, invested, fixed and circulating capital.Instruction

1

The return on equity is the ratio of net profit to equity capital. This indicator shows how many rubles of profit per ruble of the equity. It shows the return on investment of the shareholders of the company, in terms of accounting profits. This is the most important indicator for the owners of the company, as characterizes the size of their income, in particular the amount of the dividend.

2

Return on invested (total) capital is the ratio of profit margin before taxes and interest to the amount borrowed and own capital. This indicator characterizes profitability of the firm for investment as own-account and at the expense of borrowed funds.

3

Return on investment reflects the efficiency of funds which were invested in the development of this organization outside participants. It is defined as profit before tax divided by the value of the balance sheet total minus current liabilities.

4

The profitability of fixed capital is the ratio of the balance sheet profit to the average cost of capital. In a similar way to calculate profitability of working capital. Return on assets will be calculated as the sum of these coefficients or the ratio of retained earnings to the aggregate of the company's assets.

5

If you compare the return on assets and return on equity, we will see the extent of use by firm financial leverage (borrowings) with the aim of increasing profitability. The return of own capital increases if the proportion of borrowed funds in the total sources of assets increases.

6

The difference between the profitability of own capital profitability of the invested capital is called financial leverage effect. It represents the increment of profitability of own capital obtained through the use of borrowed funds.

# Advice 3: 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 4: How to calculate the profitability of primary activities

Using the calculation of several financial indicators based on the analysis of balance sheet data you can partially assess the financial condition of the company. On the other hand, using the calculations presented below, any company can assess the financial condition of partial private contractors, which involves the delivery of products.

Instruction

1

One of the key business indicators, which shows the success and efficiency of any company is profitability of its core activities. The profitability ratios characterize the profitability of the company. Along with other factors of financial analysis, profitability indicators are calculated based on financial statement data. These include the balance sheet (form №1), profit and loss statement (form №2) and a number of other documents. However, for calculating the profitability of core activities is enough of these two.

2

The coefficient of profitability of primary activity (OD) shows the amount of net profit received by the company from 1 ruble spent on production. When efficiently organized business process, this indicator should over time grow. To calculate it, divide the profit from the implementation of statement of profit and loss in the value of the cost of production. For convenience, use the formula bound to the form №2:

The profitability ratio of OD = profit from sales / costs of production.

The profitability ratio of OD = p. 050 / (line 020 + line 030 + line 040).

The profitability ratio of OD = profit from sales / costs of production.

The profitability ratio of OD = p. 050 / (line 020 + line 030 + line 040).

3

Another important indicator of the financial condition of the company is the ratio of return on sales. In contrast to the ratio of the OD it shows the amount of net profit, which brings the company for every 1 ruble of revenues. The increase of this ratio reflects the increase in the profitability of the core activities and means to improve the financial condition of the company. To calculate the ratio of return on sales, use the formula (based on the form № 2):

The ratio of return on sales = profit from sales / revenue from sales.

The profitability ratio of sales = p. 050. 010.

The ratio of return on sales = profit from sales / revenue from sales.

The profitability ratio of sales = p. 050. 010.

4

Along with the profitability indicators in the financial analysis are applied, and other factors. For example, the efficiency ratios that reflect efficiency of use company's own funds. These include turnover ratios (an indicator of efficiency of use of all the available enterprise assets), inventory turnover (rate of implementation of inventory in days) and other indicators.

# Advice 5: How to determine the return on assets

The results of operations of any company need to be analyzed. As a rule, the economic analysis of the activities carried out at the end of the reporting period, which formed a balance sheet. One of the indicators of economic efficiency of the enterprise is profitability.

You will need

- 1. Financial statements for the period under review:
- - Accounting balance sheet (form No. 1 quarterly accounting statements);
- - Report on profit and loss statement(form No. 2 quarterly financial statements).
- 2. The formula for calculating the profitability of company's assets:
- Ra = P / A x 100%, where:
- - Ra - return on assets,%;
- - P - the net profit for the reporting period,thousand RUB.;
- And the average value of the assets of the company for the period,thousand RUB

Instruction

1

To analyze the effectiveness of the use of assets(capital) of enterprises expect to measure the return on assets. Return on assets shows the amount of profit per ruble of value of assets (capital) of the enterprise. Return on assets is considered normal when the value of the rate of 18-20%.

2

Determine the amount of the net profits of the company during the analyzed period. The sum of the net profits of the enterprise take according to "statement of profit or loss"(line 190).

3

Calculate the average value of assets of the company for the analyzed period. To do this, fold the end of the balance sheet at the beginning and end of the reporting period(data line 300). The amount of assets divide by 2. So you calculate the average value of the assets of the company for the period.

4

Calculate the profitability of assets of the company in the following way. Divide the amount of net profits calculated on the average value of the assets of the company. Multiplying the resulting ratio by 100%, you will receive a return on assets of the company during the analyzed period.

Note

The higher the profits, the returns of non-current assets and the rate of turnover of working capital, the higher will be the profitability and lower the total cost of manufactured products.

Useful advice

Calculate the profitability of assets over several periods. Analyze the dynamics of the parameters, determine what factors influenced the change.