The Profitability Of The Company


2020-07-03 03:17:08




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The Profitability of the enterprise – a measure of efficiency with which fixed assets are used, calculated as the ratio of profit to the average value of fixed and current assets.

Profit and profitability of the company directly interrelated.

Profit – is an economic category that expresses the production-economic relations arising from the formation and subsequent use of the manufactured product. In the real sector profit takes material form in the form of cash, resources, funds and benefits.


If the company receives any profit, it is cost-effective. Used in the calculation of the profitability indicators reflect relative profitability. Analysis of financial stability is based on the analysis of these indicators. To assess the performance and economic feasibility of functioning of the enterprise come from absolute and relative performance.

The Absolute figures give the opportunity to make the analysis of indicators of profit for certain years. Thus to obtain more reliable results, the indicators are calculated taking into account inflation.

Relative  indicators  are a variation of the ratio of profit and capital invested in production (income and cost of production). So they are not affected by inflation.

Absolute amount of profit does not always give a correct idea of the level of profitability of a certain company, because it affects the quality of the work and scope of activities. In this regard, for a more accurate performance of enterprises use not only the absolute amount of profit, but a relative measure called level of profitability.


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These figures should be viewed in comparison with other time periods, because it allows to judge about the dynamics of development of the enterprise.


The company's Profitability characterizes the level of profitability or unprofitability of production. Themselves return ratios represent the relative characteristicsaspects financial growth and efficiency of the organization. They reflect the relative profitability of a company or enterprise, which is measured as a percentage of the cost of capital from different positions.


The most Important characteristics of the actual environment in which the profit is formed and the income of the company, are indicators of profitability. They are used in the comparative analysis and evaluation of the financial condition of the company.

The Main indicators of profitability are: the profitability of the company's products, return on equity and overall profitability.


 product Profitability is a reflection of the ratio of profits per unit of sales. This figure increases with the growth of prices for products with constant costs of production or reducing cost of production while maintaining constant a cent to realize products.

Return on equity shows efficiency of use of all property in the possession of the company.


The Overall profitability (profitability of company)  expresses the ratio of the balance sheet profit to the average value of fixed assets, as well as normalized working capital. The ratio of funds to expenses shows the profitability of the enterprise. In other words, the level of General profitability, reflecting the growth in invested capital equals the profit generated before interest, multiplied by 100 and divided by the assets.

The Overall profitability is a key measure used to analyze profitability. For a more precise definition of development organization calculates two indicators: profitability of industrial sales and turnover of assets.

The Profitability of turnover of  equal based on gross revenues from costs. The speed of capital is equal to the ratio of gross revenue to the value of capital.

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