Profitability of assets: formula and economic sense

One of the indicators of the effectiveness of the economic activity of the enterprise is profitability of assets. The formula of this indicator reflects the complex degree of efficiency of the application of monetary, labor and material resources, including natural resources. The indicator of profitability (coefficient) is calculated by the ratio of profit to resources, flows or assets that form it. Profitability is expressed by the amount of profit received in a unit of invested funds, as well as the profit that each earned monetary unit carries in itself.

There are five main indicators that reflect the profitability of assets, the formula of which has some differences.

Firstly, it is an indicator of the overall profitability of investments, which gives information about which part of the profit (balance sheet) is accounted for by each ruble of the enterprise's property, in other words, shows the effectiveness of the use of capital.

The second indicator is the profitability of investments calculated on net profit.

The third factor is the profitability of non-current assets, the formula of which establishes the relationship between the volume of profit obtained from the use of own resources and the value of their own invested resources.

Also, the profitability index of financial long-term assets is used, which determines the effectiveness of the company's investments in the activities of other enterprises.

The use of funds invested in the work of its own enterprise in the long run shows the profitability of capital (permanent).

Relative efficiency is the profitability of assets. The formula of the coefficient indicates that this value is a quotient from dividing the net profit received over the period of the total volume of the enterprise's assets for the same period. This financial ratio refers to the group of profitability and shows the ability of assets to make a profit.

In general, the profitability of assets is a kind of indicator of the efficiency and profitability of the firm's work, which is not affected by the volume of borrowings. It is used to compare the work of enterprises that are part of one industry.

Thus, the return on assets (formula) is equal to the net profit divided by the average value of assets, the components are taken for an equal corresponding period of time.

The economic return on assets shows the amount of profit per ruble invested in the company's capital.

Profitability of current assets: formula

This indicator is calculated by the ratio of net profit, which remains at the disposal of the company after deduction of taxes, to current assets. The resulting ratio indicates the company's ability to provide a sufficient amount of profit relative to the working capital used. An increase in the value of the indicator informs about the increase in the efficiency of the use of current assets.

The total profitability is calculated by the ratio of balance profit to the average annual value of current and fixed assets. This indicator is a key indicator used in the analysis of the company's profitability. If it is necessary to more accurately determine the development of an enterprise, key indicators such as the number of asset turnover and the profitability of one turnover are calculated.

The last indicator reflects the share of profit, which is accounted for each earned ruble. The ratio is calculated by the ratio of net profit to the number of sales expressed in money. The value obtained indicates the price policy of the company, its ability to control costs.