Profitability of own funds will help to evaluate the effectiveness of the company.

The most important indicators of how efficiently the company operates are profitability indicators. The profitability of an organization is determined not by any one coefficient, but by a whole set of them. This is due to the fact that the activities of the enterprise are diverse, it can be described from different points of view, and when it is administered, various resources are used. It is almost impossible to illuminate all the indicators, so we will consider literally a couple of coefficients that are extremely important.

The first indicator on which we will focus attention will be the profitability of own funds. As you can understand by name, this indicator characterizes the efficiency with which the capital invested in the company by its owners is used. This indicator, like all coefficients of profitability, is defined as the quotient of dividing the profit by the amount of profitability of which is determined. Often there is a problem, which profit indicator should be included in the calculation. However, in this case everything is extremely simple, since the profitability of own funds is determined on the basis of net profit. Also worth noting is the fact that the indicators for the numerator and denominator are taken from different forms of reporting, and this characterizes the fundamental differences in them. The profit is the amount accumulated over the period, and the amount of capital is reflected on a specific date. The problem is that during the period the amount of capital could change, but this is a very rare phenomenon. If such a change has occurred, then it can be taken into account by using the average value of capital for the period in the calculation.

Having determined the profitability of our own funds, we learned how efficient the firm is from the point of view of the owner. And how effective is the production activity of the company? The conclusion on this will help the indicators of profitability of assets. Obviously, these figures will be calculated in a similar way: profit in the numerator, and assets in the denominator. The calculation is also usually based on net profit, but sometimes profit is also used, not tax-free. Usually, three indicators are calculated that characterize the profitability of the total amount of property, as well as the return on fixed assets and current assets separately. Assets are a more dynamic indicator, which means that it is better to include in the calculations the average value for the period that is being analyzed. Of course, you may not have enough information to determine the average value. In this case, you can use the value of assets at the end of the period, but this calculation will be less accurate.

And the profitability of own funds, and all other indicators of profitability are most often studied in dynamics. This is due to the fact that for this group of indicators no regulatory values are established. In addition to studying the dynamics within a single enterprise, it is possible to make comparisons with similar factors of other enterprises, as well as with the values that are characteristic for one or another industry.

Special mention deserves the fact that the profitability of assets and equity is usually subjected to another kind of analysis - factorial. Its essence lies in determining the isolated influence on each of these coefficients of certain factors. By simple transformations, we can conclude that the effectiveness of the use of assets depends on their turnover and profitability of sales, and the profitability of the owner's capital is also affected by the level of the coefficient of financial dependence.