How to determine the profitability of core activities and other performance indicators?

Perhaps it will be difficult to find such an enterprise, which was not organized in order to obtain the greatest profit. Nevertheless, not all of them actually make this profit. If the enterprise is unprofitable, then clearly one can judge that it is inefficient. And what if the organization is profitable? Is it enough to bring profit, or more? And maybe it is several times more profitable than other enterprises in the industry? To estimate the level of profit, it is customary to calculate the coefficients of profitability. The company's activities are multifaceted, described by a huge number of different indicators. In this regard, the profitability of activities can be determined using different coefficients, but we will consider only some of them.

As a rule, each firm, producing certain products or providing services, is in the framework of a certain type of activity. This type is the main one, as it not only brings the greatest revenue, but also employs the largest number of personnel. In order to assess the profitability of the main activity, it is necessary to determine the ratio by assigning profits to the costs that were generated in the course of this activity. Profit indicators can be used different, for example, profit from sales or before taxation. Profitability of the main activity allows you to determine how much profit each unit invested in costs can get, that is, in the cost of production or services.

On the other hand, the enterprise does not just produce products or services, but sells them. Implementation is an integral part of the activity. Because of this, you may encounter a situation where the profitability of the main activity will be determined by the ratio of the profit from sales to the revenue received. This situation is not entirely correct, since this indicator still has the name of profitability of sales (sales). Its economic meaning is also somewhat different, since it allows us to judge the share in the revenue of such an indicator as profit.

To carry out an activity, you must have certain assets, that is, assets. And they need not just to have, but also to use them most effectively. To determine the efficiency, the return on assets is calculated . The calculation procedure is also extremely simple and similar to the previous indicators: it is necessary to divide this or that type of profit into a balance sheet total, which shows the total value of assets. As a numerator, the net profit or profit before tax is most often used. Assets are traditionally divided into non-current and circulating components. Determine the profitability of each of them also will not be superfluous.

If we proceed to the study of profitability from the point of view of liabilities, then the main sense is the calculation of the return on equity, that is, the money invested by the owner. This indicator characterizes the degree of efficiency of the firm from the point of view of its owner. Most often, the calculation of this indicator is used when choosing an enterprise for the purpose of investing funds.

The profitability of the core business and all other indicators of profitability can not be assessed from the standpoint of regulatory values, so they must necessarily be compared either in dynamics, or with the levels of similar enterprises, or with industry-average values. Of particular interest is the study of profitability in dynamics, since some features of these indicators by simple transformations allow them to be brought to a form that will help determine the isolated influence of various factors. This kind of analysis, obviously, is called factorial and is mainly carried out on the basis of DuPont formulas.