Profit functions and its types

Profit functions characterize the economic effect of the enterprise, stimulating its development, the budget forming aspect of its activities. In order to understand this economic category, you need to understand what the profit is. The concept of profit reflects the net income received , which is created in the sphere of material production in the form of cash savings. It can be viewed from completely different sides. The profit acts as an economic category, forms of cash savings, the result of economic activity, the source of development financing , the criterion for selecting investment projects and optimizing current costs.

The profit function of an enterprise directly depends on the above-mentioned features. The profit received by the enterprise reflects the economic effect obtained in the course of economic and financial activity. These functions of profit are characterized by excess of the received incomes over expenses of the enterprise directed on realization of its activity.

Unfortunately, with the help of this indicator it is not always possible to assess all aspects of economic activity. That is why the analysis of financial and economic activities is carried out with the help of a whole system of economic indicators. The economic essence of profit is that it reflects the final financial result.

The incentive functions of profits are due to the fact that it is not only the final result, but also the main element of the formation of financial resources. Any enterprise is interested in its maximum amount, because the net profit remaining at its disposal should cover the needs for financing production activities, social and technical development of the enterprise, creating a fund for material encouragement. The stimulating function is also manifested in the fact that dividends are paid out of profits to the owners and shareholders of the enterprise.

The budget-forming functions of profit are no less important, since this is one of the sources of the formation of different levels of budgets. Budgets receive it in the form of taxes and use the funds received to finance the needs of society; State industrial, investment, social and scientific-technical programs; Provision of public functions. Profit in the scale of society is a factor in the social and economic development of the entire state.

There are such kinds of profit:

1. Gross - the difference between the income from the sale of products without VAT, excises, other taxes, fees and the cost of this product. It is a general indicator of effectiveness.

2. From sales - this is gross profit, reduced by the amount of managerial and commercial expenses. It characterizes the efficiency of activities related to the main production.

3. Accounting (before taxation) - profit from sales, increased by the amount of other revenues.

4. Net is the profit before tax, reduced by the amount of tax liabilities for the reporting period.

5. Undistributed - the amount of net profit, reduced by the amount of distributed profit. Separation of different species is made based on the different interests of persons who manage the work of the organization and control it. For example, the owners of the enterprise consider the net profit to be the main indicator, and the state determines the profit before taxation as the main financial indicator.

The most important economic process is the distribution and use of the profits received. Legislatively, this process is regulated in the part that is intended for deduction to the budget. Determination of the ways of spending the profit, which is at the disposal of the enterprise, is made according to the internal provisions of the organization.

Net profit can be directed to the formation of reserve capital (fund), payment of dividends, repayment of previous losses, other payments (financing of investments, solving social problems, material encouragement of employees).