Approaches to managing profitability indicators. Managing corporate profitability: a process approach. Analysis of the financial condition of JSC "Wild Orchid"

Such an analysis is built in accordance with the system of profitability indicators used at a particular enterprise. Taking into account the previously discussed groups of indicators, factor analysis can be constructed as follows.

The profitability of products is determined by changes in the price of the product and its cost (material costs).

Let K 0 and K 1 be the profitability of products for the base and reporting periods, respectively. Then by definition:

K 0 =(N 0 -S 0) / N 0. (1.6)

K 1 = (N 1 -S 1) / N 1.

where P 1 , P 0 - profit from sales of the reporting and base periods, respectively;

N 1, N 0 - sales of products (works, services), respectively;

S 1, S 0 - cost of products (works, services), respectively;

K - change in profitability for the analyzed period.

The influence of the factor of price changes on products is determined by calculation (using the method of chain substitutions):

K N =(N 1 -S 0) / N 1 - (N 0 -S 0) / N 0. (1.7)

Accordingly, the impact of changes in cost will give the overall change in profitability for the period:

K S =(N 1 -S 1) / N 1 - (N 1 -S 0) / N 1. (1.8)

The sum of factor deviations will give the total change in profitability for the period:

K=K N -K S . (1.9)

Thus, the profitability of products directly depends on the volume of sales, that is, revenue and cost of production. To increase profitability, one of the following conditions must be met: revenue growth with constant or decreasing costs; cost reduction with constant revenue volume; or a higher growth rate of revenue compared to the growth rate of cost.

The profitability of production assets is also easily modeled using factor dependencies:

K P.K. =P/(F+E)=(P/TR)*(TR/(F+E)) (1.10)

where: K P.K - profitability of production assets;

P - net profit;

F - cost of main production assets;

E - average amount of working capital;

TR - sales revenue.

This formula reveals the relationship between the profitability of funds K P.K, production assets (P/(F+E)), profitability of sales (P/TR), and capital productivity (TR/(F+E)). The economic meaning is that the formula directly shows ways to increase profitability: with low sales returns, it is necessary to strive to accelerate the turnover of production assets.

It is necessary to consider one more factor model of profitability:

P/PK=(P/TR)*(TR/TK)*(TK/PK) (1.11)

where: PK - equity capital;

TK - total capital.

As can be seen, return on equity (P/PK) depends on changes in the level of product profitability (P/TR), the rate of turnover of total capital (TR/TK), and the ratio of equity and debt capital. From this dependence it follows that, other things being equal, the return on equity capital increases with increasing share borrowed money as part of total capital. The study of such a dependence has great evidentiary power for assessing financial condition enterprises, assessing the degree of results of their activities.

However, the following caveat must be made. When analyzing the factors that determine the level of profitability according to the elements of the formulas, the economic meaning of the phenomena is sometimes distorted, since the absolute values themselves do not show the efficiency of using the funds advanced for production. For example, any increase in the average cost of fixed assets will cause a decrease in profitability. In reality, technical progress is, as a rule, accompanied by an increase in the capital-labor ratio of workers and the value of the general production fund, which is the main driver of increasing production efficiency, including profitability.

Profit and profitability in the conditions of formation market economy are the most important indicators economic activity agricultural organizations and enterprises. These indicators reflect all aspects of enterprise activity: volume and structure of turnover, rational use of resources, implementation of measures to improve organizations and production process technologies, etc.

The amount and level of profit are formed under the influence of a large number of different factors that have both positive and negative influence on them. The number of factors that determine the amount of profit and profitability can hardly be clearly limited; it is very large. Weight factors can be divided into major ones, which have the greatest impact on the amount and level of profit, and secondary ones, the influence of which can be neglected. In addition, the entire set of factors can be divided into internal and external. They are closely related.

TO internal factors influencing profit and profitability include resource factors (the size and composition of resources, the state of resources, conditions of their operation), as well as factors associated with increasing revenue.

The main external factors that shape the profit of an agricultural enterprise include the following factors:

Market volume.

The training of an agricultural enterprise depends on the market capacity. The greater the market capacity, the greater the company's ability to make a profit.

Development of competition.

It has a negative impact on the amount and level of profit, because it leads to averaging of the rate of profit. Competition requires certain expenses that reduce the amount of profit received.

Price range.

In a competitive environment, price increases do not always lead to an adequate increase in selling prices. Agricultural enterprises strive to work less with intermediaries and choose among suppliers those who offer goods of the same quality level at lower prices.

Prices for services of transport, public utilities, repair and other enterprises.

Increasing prices and tariffs for services increases the operating costs of enterprises, reduces profits and reduces the profitability of trading activities.

Development of the trade union movement.

The company strives to limit costs for wages. The interests of workers are expressed by trade unions, which are fighting for increased wages, which creates the preconditions for a decrease in the profit of the enterprise.

Development of activities public organizations consumers of goods and services.

State regulation of the activities of agricultural enterprises. This factor is one of the main ones that determines the amount of profit and profitability.

1.3 Profit and profitability management

The high role of profit in the development of an enterprise and ensuring the interests of its owners and personnel determine the need for effective and continuous profit management. Profit management is the process of developing and accepting management decisions on all the main aspects of its formation, distribution, use and planning in the enterprise.

Ensuring effective profit management of an enterprise determines a number of requirements for this process, the main of which are:

1. Integration with the general enterprise management system. In whatever field of activity of the enterprise a management decision is made, it directly or indirectly affects profits. Profit management is directly related to production personnel management, investment management, financial management and some other types of functional management. This determines the need for organic integration of the profit management system with the overall enterprise management system.

2. The complex nature of the formation of management decisions. All management decisions in the field of formation and use of profit are closely interconnected and have a direct or indirect impact on the final results of profit management. In some cases, this impact may be contradictory. For example, the implementation of highly profitable financial investments can cause a shortage of financial resources that support production activities, and as a result, significantly reduce the size of operating profit. Therefore, profit management should be considered as a comprehensive system of actions that ensures the development of interdependent management decisions, each of which contributes to the effectiveness of the formation and use of profit for the enterprise as a whole.

3. High dynamism of control. Even the most effective management decisions in the field of generating and using profits, developed and implemented at the enterprise in the previous period, cannot always be reused at subsequent stages of its activity. First of all, this is due to the high dynamics of factors external environment at the stage of transition to a market economy, and first of all - with changes in the conditions of the commodity and financial markets. In addition, the internal operating conditions of an enterprise also change over time, especially during the transition to subsequent stages of its life cycle. Therefore, the profit management system should be characterized by high dynamism, taking into account changes in environmental factors, resource potential, forms of organization and production management, financial condition and other parameters of the enterprise’s functioning.

4. Multivariate approaches to the development of individual management decisions. The implementation of this requirement presupposes that the preparation of each management decision in the field of formation, distribution and use of profit must take into account alternative possibilities of action. If there are alternative projects of management decisions, their choice for implementation should be based on a system of criteria that determine the profit management policy of the enterprise. The system of such criteria is established by the enterprise itself.

5. Focus on the strategic goals of enterprise development. No matter how profitable certain projects of management decisions may seem in the current period, they should be rejected if they conflict with the mission (the main goal of the activity) of the enterprise, the strategic directions of its development, or undermine the economic basis for the formation of high profit margins in the coming period.

The main goal of profit management is to ensure maximization of the welfare of the owners of the enterprise in the current and future periods. This main goal is intended to simultaneously ensure the harmonization of the interests of owners with the interests of the state and the personnel of the enterprise.

Based on this main goal, we can formulate a system of main tasks aimed at achieving the main goal of profit management:

1. Ensuring maximization of the amount of generated profit corresponding to the resource potential of the enterprise and market conditions. This task is achieved by optimizing the composition of enterprise resources and ensuring their efficient use. The main ones are the maximum possible level of use of resource potential and the current situation in the commodity and financial markets.

2. Ensuring optimal proportionality between the level of generated profit and the acceptable level of risk. As already noted, there is a directly proportional relationship between these two indicators. Taking into account the attitude of managers to business risks, their acceptable level is formed, which determines aggressive, moderate (compromise) or conservative policies for carrying out certain types of activities or conducting individual business transactions. Based on the given level of risk in the management process, the corresponding level of profit should be maximized.

To develop a strategy for managing return on equity and a comprehensive assessment of the main factors influencing it, the DuPont model6 is used. This model allows us to assess the impact on return on equity of factors such as the equity multiplier, business activity and return on sales.

The DuPont model aggregates the most important absolute and relative financial indicators activities of the organization (Fig.

The strategy for increasing profitability due to the three listed factors largely depends on the specifics of the organization’s activities. Therefore, in the process of developing financial policy, it is necessary to evaluate the internal and external factors of business functioning. Due to the margin, an organization that produces high-quality products for a segment characterized by fairly high incomes and low price elasticity of demand can increase profitability. At the same time, the share of fixed costs should be quite low, since high margins are usually accompanied by a small volume of production and sales. In addition, since high margins are always an incentive for competitors to enter the market, the strategy of increasing return on equity through margins is applicable if the market is sufficiently protected from potential producers. If the direction of increasing return on equity is asset turnover, then the market segment served should be characterized by high price elasticity of demand and low incomes of potential buyers. In this case we are talking about the mass market, and therefore production capacity must be sufficient to meet demand. Increase return on equity due to the multiplier, i.e. by increasing liabilities, is possible only if, firstly, the profitability of the organization’s assets is significantly higher than the cost of attracted liabilities and, secondly, in the structure of its assets, non-current assets occupy a small share, which allows the organization to have significant share of non-permanent sources. Own

capital - Multiplier

own

capital 1 i/*

K Assets Ratio

turnover

assets 1 Revenue Return on sales (margin) Net profit Return on equity

Rice. 8.1. DuPont model

DuPont's three-factor model looks like this:

Pk = - V - -100 = M k0 t,

where M is the equity multiplier, calculated as the ratio of adjusted assets (assets minus

accounts payable, liabilities are equal to invested capital) to equity;

ko - asset turnover ratio;

m- net profitability sales (net margin).

There are modifications of the DuPont model that allow a more complete study of the influence of individual factors on return on equity. For example, a five-factor model that additionally takes into account the interest burden factor and the efficiency of other activities. The “interest burden” indicator is calculated as the ratio of net profit to net operating profit and allows you to assess the effectiveness of borrowing; the indicator “efficiency of other activities” is defined as the ratio of net operating profit to net profit from sales and allows you to assess the impact of the result from other operations on the final efficiency of the business.

The five-factor model looks like:

Rk = - ? - ?Pchpr? -Po- ?P^ 100 = M? k0 ? what? oh? bp, k Ks A V PChpr PCho 0 40 e p

where Pcho is net operating profit;

Pchpr - net profit from sales, calculated as profit

from sales minus income tax;

tcho - net operating margin;

bpr - interest burden, calculated as the ratio of net

profit to net operating profit;

ke - efficiency factor of other activities.

ke The DuPont Five-Factor Model allows you to give a comprehensive assessment of the organization’s activities, including an assessment of the financing strategy (through the equity multiplier and the interest burden indicator), management efficiency (through asset turnover and the efficiency ratio of other activities), and product competitiveness (through margin).

Analysis of the situation. The results of calculating the return on equity of OJSC “XYZ” using the three-factor DuPont model are presented in Table. 8.7.

Assessing the results of the analysis, it can be argued that the decrease in return on equity capital from 38.21 to 37.24% was predetermined by two factors: turnover (contribution to the decrease in profitability of 8.28 percentage points), as well as net margin (6.06 points), positive Return on equity was affected only by the multiplier (13.37 points). As a result, the decrease in operating efficiency was partially compensated for by an increase in financial activity. Thus, the methodology records the following trends that took place in the analyzed period: a decrease in operating efficiency, manifested in a decrease in margin from 14.46 to 12.31% and a decrease in asset turnover from 2.47 to 1.99, as well as an increase in financial activity , manifested in an increase in the multiplier from 1.07 to 1.52.

Table 8.7. Results of the analysis of return on equity using the DuPont model Indicator Previous year Reporting year Influence of factors Rank

own

assets 2.47 1.99 (8.28) (847.10) 2 Net margin, % 14.46 12.31 (6.06) (620.06) 3 Return on equity, % 38.21 37.24 (0.98) (100.00) At the next stage of calculations, a five-factor model is examined, obtained by expanding the DuPont model and introducing two more factors into it - an indicator of the interest burden and an indicator of the effectiveness of other activities. The calculation results are presented in table. 8.8.

The calculation results make it possible to significantly specify the previously drawn conclusions. The decrease in net margin, which was noted earlier, is not associated with a decrease in the efficiency of core activities, but with the inefficiency of other operations, the contribution of which to the decrease in profitability amounted to 5.55 points. If the efficiency of other operations had not decreased from 0.95 to 0.82, then the return on equity would have been 42.82%.

The efficiency of borrowing was high, since the increase in the interest burden, which led to a decrease in profitability by 0.48 percentage points, was many times offset by an increase in the multiplier, which led to an increase in profitability by 13.37 percentage points.

Table 8.8. Results of the analysis of return on equity according to the five-factor model Indicator Previous year Reporting year

year Influence of factors Rank

Factor Points % Multiplier

own

capital 1.07 1.52 13.37 1367.17 1 Turnover

assets 2.47 1.99 (8.28) (847.10) 2 Net return on sales 15.35 15.34 (0.03) (2.64) 5 Efficiency of other activities 0.95 0.82 (5. 55) (567.98) 3 Interest burden 1.00 0.98 (0.48) (49.45) 4 Return on equity 38.21 37.24 (0.98) (100.00) Main areas of impact on return on equity should be: further attraction of borrowed capital and increasing the equity multiplier, increasing asset turnover by strengthening control over the use of newly acquired property, increasing margins by strengthening the marketing mix and improving the efficiency of the cost policy, increasing the efficiency of other activities due to reducing losses from other operations. 8.3.

Profitability is an indicator that reflects the efficiency of using material, labor, money and other resources. The system of profitability indicators gives an idea of economic efficiency the work of the organization and helps business owners and management make management decisions. At the same time, profitability indicators are relative, and therefore it is impossible to get an idea of the liquidity of the enterprise on their basis.

Profitability indicators

Return on Sales ROS (Return on Sales) characterizes the efficiency current activities enterprise and the validity of its pricing policy.

ROS=Gross Profit/Revenue=(Net Sales-Cost)/Net Sales

Return on assets ROA (Return on Assets) gives an idea of how much profit is generated for each ruble invested in the organization's property.

ROA=Profit/Average Assets

Return on equity ROE (Return on Equity) shows the return on shareholders' capital.

ROE=Net profit/Average equity

Profitability invested capital ROI (Return on Investment), ROIC (Return on Investment Capital), ROCE (Return on Capital Employed), ROACE (Return on Average Capital Employed) shows the return on invested, employed or invested capital

ROI (ROIC, ROCE, ROACE) = Profit / Average amount of invested, employed, invested capital.

Profitability Management Methods

Since profit takes part in the calculation of any profitability indicator, to increase the profitability of an enterprise you need to:

increase the volume of trade turnover;
change the structure of trade turnover (for example, expand the range);
speed up the promotion of Products in trading network;
improve the trade and technological process of selling goods;
influence the number and composition of workers, as well as use a system of economic incentives for their work and increase labor productivity (you may have to influence the technical equipment of workplaces);
improve the state of the material and technical base of the enterprise;
develop a trading network by working on the territorial location of points;
increase the amount working capital;
check the pricing procedure;
organize work on timely collection of receivables;
work with business reputation enterprises;
reduce current expenses, or switch to saving mode.

For quantification the interaction of profitability indicators and the influence of other factors on them, factor and index methods of analysis can be used.

Ekimov Evgeniy - Balance LTD

Area of professional interests - strategic management, enterprise economics, management accounting, financial analysis, description and design of business processes. Specialization - working with medium-sized enterprises, including groups of companies or holdings.

In manufacturing or production and trading companies, the range of their own products can number hundreds or thousands of items. Effective management such an assortment is a complex task, for the solution of which it is necessary to collect analytical information and present it in a visual and easy-to-understand form. A product matrix built in coordinates will help<рентабельность - объем продаж>and called here the profitability matrix.

Two indicators The profitability matrix is a table or diagram in which the names or designations (numbers, codes) of products from the company’s range are placed. The horizontal axis displays the sales volume for the reporting period (for example, a month), and the vertical axis shows the profitability of each product. In this case, sales volume can be indicated in physical or monetary terms. Profitability here is understood as the ratio of profit from the sale of a product to its cost, defined as follows: R = (P-C) / C, where R is profitability; P - selling price per unit of product; C is the full cost of a unit of product (you can use a partial cost, indicating which types of costs are included in it and which are not).

If the price changed within the reporting period, then its weighted average value is substituted into the formula. An example of a matrix is given in table. 1. Why were these two indicators chosen to construct the matrix? Sales volume reflects the demand for the product from buyers, and profitability reflects the benefit of its release for the manufacturing company. The extent to which these conditions are consistent can be seen using the matrix.

About accounting The profitability matrix can be depicted as spreadsheet. To build it, you need to have initial information about income and costs, detailed for each product. Therefore, the introduction of such a matrix into management practice requires the establishment of at least elementary procedures management accounting. This question is often relevant in companies where there is no ERP system, and the existing accounting automation is partial, i.e. is available only in certain areas and is not always correlated between divisions of one enterprise. What cost should be used when calculating profitability? In addition to the indicated option ( full cost) another solution is possible - taking into account only direct costs. Both options have their advantages and disadvantages. If the full cost of each product is used to construct the matrix, then the question arises about how to distribute indirect costs related to several products at the same time. This issue does not have a clear solution, since it is not an accounting issue, but a management one. It can be formulated differently: which divisions or products will<назначены>responsible for covering general expenses? And if there are several of them, how are their shares of participation determined? Making such decisions is within the competence of the owners and can be delegated to the company’s management. If instead of the full cost, only direct costs are used, then the calculation of profitability is simplified, but its values turn out to be overestimated, and the impact of indirect costs on the company’s financial results remains beyond the scope of analysis. In any case, it is necessary to adhere to the same method of constructing the matrix to ensure comparability of data for different reporting periods.

Purpose of the Matrix Unlike other similar tools, such as the Boston Consulting Group (BCG) matrix or the McKinsey/General Electric matrix, the profitability matrix is intended to be operational, not strategic management. When constructing it, only internal information is used, which is already available in the company and allows you to calculate the necessary indicators with a high degree of accuracy. The position of any product in the profitability matrix should be considered taking into account its life cycle. Traditional option life cycle:

 launch;

 high profitability with low sales volume;

 high profitability with large sales volumes;

 low profitability with large sales volumes;

 low profitability with low sales volume;

 discontinuation from production. The profitability matrix provides a visual representation of such a cycle. Once launched into production, a product appears in the upper left corner of the matrix, then moves to the right, down, left, and ultimately is eliminated from the assortment. Of course, the real life cycle may look different. For example, the actual profitability of a new product may be lower than expected due to some unforeseen circumstances in production or due to the appearance of cheaper analogues on the market, forcing a reduction in selling prices. Actual demand dynamics may also differ from those expected. When launching new products, problems may arise. different situations, which affect the position of a particular product in the matrix. In the most favorable case, the correct forecast (or just luck) leads to the fact that New Product immediately or almost immediately falls into<лидеры продаж>, and among the most profitable. Another option is possible: the product is in great demand, but has low profitability. In this case it replenishes<консервативную>part of the assortment that has exactly these characteristics. The most difficult and, at the same time, very likely situation is with innovative products: low sales volume and low profitability. This happens if the company has not yet learned how to produce or sell a new product and the associated costs are significantly higher than expected. Using the profitability matrix for practical purposes, it is necessary to take into account the conditions under which it becomes effective tool. These conditions can be formulated as follows: 1. Production has a high degree of flexibility, which makes it easy to redistribute output volumes between individual products without significant costs. A similar situation is possible where there is a wide range, when a large number of products belong to one product group and is produced using the same or almost the same technology. 2. The duration of the product life cycle is many times longer than the reporting period. If this condition is not met, then the results obtained at one stage of the life cycle may be extrapolated to the next stage without sufficient evidence. This can lead to erroneous conclusions, for example when rapid sales growth ends and market saturation occurs. If the reporting period is a month (or more short term), then this condition is almost always met. 3. The sales volume for the reporting period is due to a large number of transactions with different buyers. This allows the use of mathematical statistics, considering that the result obtained in a given period is the rule and not the exception. Manager Tips A profitability matrix displays financial performance for a large number of products over one period of time, allowing you to compare products with each other and evaluate the contribution of each to the company's overall profit. This makes it easier to understand the situation as a whole and make decisions on individual product items. In addition, the matrix helps to see several typical cases for which there are<подсказки>, i.e. recommendations. These recommendations are given in table. 2.

Let's show all possible situations corresponding to each of the fields of the matrix: 1. High profitability of the product combined with low sales volume. In such a situation, it is beneficial for the company to increase sales without reducing profitability. Methods for solving such problems lie in the marketing plane and relate to product promotion (searching for market niches and target audiences, advertising, PR, etc.) Therefore, in this case, a recommendation is issued<продвигать>. The same situation can arise for another reason - if production capabilities lag behind demand. The case is infrequent, and here an increase in product output is required (possibly by reducing the production of less profitable product items). 2. High profitability combined with high sales volume. The most favorable case. The situation must be supported and secured by all available means that are applicable in the field of sales, production or procurement. Recommendation for this case<поддерживать>. 3. Low profitability combined with high sales volume. The case is ambiguous, because<новым>, just appeared and to<старым>products should take different approaches. If a new product is in high demand but its profitability is low, there may be ways for it to increase profitability by lowering costs or increasing selling prices (without significantly reducing sales volume). For product items that have long been included in the company’s assortment, such funds may already be exhausted. Accordingly, a recommendation is given for new products<развивать>, i.e. make changes to the production or sales process in order to increase profitability, and for old ones -<сохранять>, i.e. leave the situation unchanged. All products included in this group form<консервативную>part of the assortment that provides a stable cash flow (necessary to compensate for semi-fixed costs) and low, but still positive profitability. 4. Low profitability combined with low sales volume. As a rule, products that are in the last stage of their life cycle fall into this group. The recommendation applies to them<исключать>, which means the cessation of production and sale of inventory (unless the company has special reasons for maintaining the production of such products). New products may also fall into this group (which is undesirable for the company). This means that mistakes were made during the planning process. If it is impossible to eliminate them, the same recommendation remains<исключать>(and costs associated with developing a product and launching it into production are recognized as losses). If the situation is assessed as surmountable, which is possible for innovative products with high growth potential, then the recommendation applies to them<развивать>. This case is more complex than the previous one, since here it is necessary to solve two problems at once. Such decisions should not be made based on the results of only one period. In addition, it must be borne in mind that for many types of goods there is such a thing as<сезонность покупательского спроса>. It affects sales volumes, and with a significant share of semi-fixed costs, it also affects the cost of individual products, and therefore their profitability.

The profitability matrix allows you to see objective results related to the reporting period and can be used for variance management (plan-actual). At the same time, it does not contain information about the future. In this regard, making decisions associated with high costs, changing positioning or other long-term consequences (especially decisions to discontinue production) is advisable only if the results obtained are sustainable.

The presence of seasonal fluctuations in sales volume does not prevent the profitability matrix from being<зеркалом>, reflecting the real picture for the past or current period. At the same time, seasonality influences the explanation of the results obtained and the decision-making associated with them. For example, a product had high profitability and a large sales volume for the month. The following month, sales fell, but profitability remained almost unchanged. What to do with such a product? If we know that there are no or almost no seasonal fluctuations, then the answer is clear - to promote the product to the buyer, achieving an increase in demand. What if there is a seasonal downturn? What to do in this case? Maybe we should still promote it? And at what time? Now, acting contrary to the trend, or, on the contrary, wait for a favorable moment when sales themselves begin to grow? All these questions cannot be given a definite answer until the goals of the assortment policy are explicitly stated. It is also known that goals quite often contradict each other. In this case, an alternative may arise: either high profitability with low sales volume, or vice versa. There are other situations when you have to make a choice, for example, between the value<прибыль>on equity> and the market share that the company occupies. To resolve such contradictions, it is necessary to formulate goals, as well as set priorities. This is all part of the work of strategic management. Assessing profitability indicators (high/low) and sales volume (large/small) always contains an element of subjectivity. Thus, profitability can be considered high if it exceeds the target or expected values specified by the business owners. The latter usually focus on the known profitability values of other enterprises in the same industry or on the alternative return on their financial investments. As for sales volume, the assessment of its indicators is directly related to the chosen assortment policy. This is either the widest range possible, where all products are stored with an acceptable level of profitability, or, on the contrary,<самые продаваемые>goods. Moreover, ideas about what it is<много>And<мало>, usually differ depending on the product category. Therefore, for each category it is advisable to build a separate profitability matrix. The profitability matrix gives a clear idea of<вкладе>individual products into the overall financial result obtained by the company for the period. In addition, this method facilitates decision-making in the field of product range management and can be used when consulting manufacturing and trading companies.

For your information Department of Economics and Finance of the Company State University- Higher School of Economics invites you to take part in the Round Table<Поведенческие финансы и российские реалии: время пришло?>, which will take place on March 17, 2004 at 15:00 at the address: st. Myasnitskaya, 20, room 311. Trends in the behavior of individual investors, features of decision-making by company managers, taking into account the human factor in risk management: here is an incomplete list of applied aspects of behavioral finance, which are becoming increasingly in demand by the world's leading corporations. Presentation: From market behavior to hormones and neurons Dmitry Vladimirovich Repin, Professor of the Department of Economics and Finance at the State University Higher School of Economics, Research Fellow at MIT Sloan Business School Suggested questions for discussion:

Why are economists' predictions more often wrong than correct?

Should an investor be aware of the peculiarities and trends of his own behavior in the market?

Corporate governance: problems of ethics and motivation of management.

Risk management: is there a place for psychology here? Top managers of large Russian industrial and investment companies, international and Russian consulting firms, representatives of professional associations, universities and universities, journalists from leading publications.

Bibliography

To prepare this work, materials from the site http://cfin.ru/ were used

Other materials

If not, which ones are the most important? 6. PRODUCT AND ASSORTMENT MANAGEMENT 6.1 Contents product policy enterprise Marketing management includes, in addition to strategic management, also management at the instrumental level, i.e. making decisions regarding four...

Due to its modernization or additional devices; - reduction in the range of products or discontinuation of products that are not in demand. When starting to plan your assortment and develop new products, you should always remember that no, the best...

They also have talented managers who could develop and implement a strategy. These ideas will become main theme strategic management. They are developed in more detail in parts 2, 3 and 6 of this book. 2.1.5 Conclusions Strategy is a complex and potentially powerful tool with which...

Business strategy as a tool for anti-crisis development of a company

... (using the example of the Complex of Oil Refineries and Petrochemical Plants of JSC TANECO) We decided to choose a SWOT analysis as a business strategy as a tool for anti-crisis development of the company, which allows us to obtain a clear assessment of the strengths of the enterprise and the market situation. Exactly when...

Optimization of product assortment management at retail enterprises

Reductions trade margin. 3. Proposals for improving management product range grocery store "Pushkinsky" 3.1 Optimization of the assortment One of the ways to increase the efficiency of the company is to optimize the assortment of products. What stages does...

Marketing strategy for commercial bank management

Demand, analyze the competitor market and draw up an action plan to promote your product - marketing strategy. 1.2 Promoting commercial bank services to the market To achieve success, banks must apply new forms of work. But before you decide to start a new...

Strategic analysis of an enterprise using the example of Construction Management LLC

Making 4% of turnover and 4% of profit. Thus, in the second chapter an analysis of management practices was carried out strategic development LLC "Construction Management" enterprise. Construction Management LLC was created as a single structure, successfully operating in the Russian...

Resources (drawing up plans and budgets); - monitoring and control over the implementation of planned plans and programs. Model of the strategic management process: 1. Clarification of corporate goals and structuring. 2. Forecast future performance based on current strategy and determine the discrepancy...

Development and improvement of modern enterprise management (using the example of PRUE "METZ named after V.I. Kozlov")

In the field of quality 2001 Since 2000, PRUE "METZ IM.V.I. KOZLOV" on behalf of the Ministry of Industry of the Republic of Belarus has been engaged in scientific and practical activities to transfer experience in the development and implementation of an enterprise quality management system in accordance with MC ISO 9001-2000 . ...

... “functions - goals” for each group of functional subgoals of the goal “Maintaining the market share of sewing products.” small business management structure Table 3.1 – Matrix projection of organizational units onto the developed tree of goals Goals/ structural units CEO...

Assortment policy and quality management of beer sold at a retail trade enterprise using the example of CJSC Trading House "TD Perekrestok"

In the field of assortment policy and quality management of beer sold 2.1 Characteristics of the enterprise One of the important directions for the development of Rostov retail is the growth in the number of large supermarkets. This number also includes the supermarket of CJSC TD Perekrestok, which...

Managing the assortment and quality of bakery products at a retail enterprise using the example of the Union store

Step by step the composition of each of the subsystems included in the system for managing the assortment and quality of goods of the bakery products group in the store (Table 1). Table 1. Management system for the assortment and quality of bakery products Functional subsystems Organization Planning (...

Send your good work in the knowledge base is simple. Use the form below

Students, graduate students, young scientists who use the knowledge base in their studies and work will be very grateful to you.

Posted on http://www.allbest.ru/

Ministry of Education and Science of the Russian Federation

Federal Agency for Education

State Educational Institution of Higher Professional Education Kuban State Technological University

Department of Economics and Production Management

Institute of Food and Processing Industry

Report

discipline: Enterprise Economics

on the topic of: "Controlprofitabilityenterprises"

Completed by a student

A.V. Shumilina

groups 09 - I - TX1

Checked by Associate Professor S.K. Vasiliev

Introduction

1. The essence of profitability, its role and significance

2. Profitability indicators

3. Profitability management methods

4. The role of managers in achieving profitability

5. Profitability as a factor in making investment decisions

Bibliography

INconducting

In a mobile market economy, characterized by competition and the need to ensure the efficient operation of any commercial organization, one of the most important areas of managing an organization’s activities is ensuring its profitability.

The relevance of this topic determines the impact of profitability on the enterprise.

The purpose of the work is to study the influence of profitability of activities to determine possible complex methods and profitability management tools.

To achieve the set goal in this work it is necessary to solve the following problems:

Explore economic essence and the relationship between the profitability of organizations in modern economic conditions;

Get acquainted with methods of managing the profitability of organizations.

1. Essenceprofitability,herroleAndmeaning

If profit is expressed in an absolute amount, then profitability is a relative indicator. The profitability indicator is a relative characteristic financial results and the efficiency of the enterprise, that is, it characterizes the relative profitability of this enterprise. The performance of an enterprise can be assessed by such indicators as sales volume, costs and profits. When characterizing the financial or production results, the listed indicators are not able to assess the efficiency of the enterprise. First of all, this is due to the fact that these indicators are absolute characteristics of the enterprise’s activities, and their correct interpretation for assessing performance can be carried out in conjunction with other indicators characterizing the funds invested in the enterprise. Indicators characterizing the efficiency of an enterprise are profitability indicators.

Profitability is the ratio of income to the capital invested in creating that income. By linking profit to invested capital, profitability allows one to compare the level of profitability of an enterprise's activities with an alternative use of capital or with the profitability obtained by the enterprise under similar risk conditions. Riskier investments require higher returns to become profitable. Since capital always brings profit, to measure the level of profitability, profit, as a reward for risk, is compared with the amount of capital that was necessary to generate this profit. Profitability is an indicator that comprehensively characterizes the efficiency of an enterprise.

With its help, you can evaluate the effectiveness of enterprise management, since obtaining high profits and a sufficient level of profitability largely depends on the correctness and rationality of management decisions made. Therefore, profitability can be considered as one of the criteria for the quality of enterprise management.

Based on the level of profitability, one can assess the long-term well-being of the enterprise, i.e. the ability of a business to earn a sufficient return on investment. For creditors and investors investing in the equity capital of an enterprise, this indicator is a more reliable indicator than indicators of liquidity and financial stability, determined on the basis of the ratio of individual balance sheet items.

By establishing a connection between the amount of profit and the amount of invested capital, the profitability indicator can be used in the process of forecasting profit. In the forecasting process, the profit expected to be received on these investments is compared with actual and expected investments. The estimate of expected profit is based on the level of profitability for previous periods, taking into account projected changes.

Profitability is of great importance for making decisions in the field of investment, planning, budgeting, coordinating, evaluating and monitoring the activities of the enterprise and its results.

To summarize, we can say that profitability is an indicator that reflects the efficiency of using material, labor, money and other resources. The system of profitability indicators gives an idea of the economic efficiency of the organization and helps business owners make management decisions. At the same time, profitability indicators are relative, and therefore it is impossible to get an idea of the liquidity of the enterprise on their basis.

Liquidity is the ability of an asset to be converted into cash, one of the most significant indicators of a company’s performance. After all, it is he who determines whether the company is able to pay its obligations in a timely manner and in full. The liquidity of an enterprise implies its full solvency, constant equality of the amount of liabilities and liquid funds (those same assets that can be used to pay off debt).

It is impossible to evaluate and give recommendations for making management decisions only on the basis of liquidity ratios; it is advisable to compare these indicators with the profitability indicators of the enterprise, which show the efficiency of operations.

2. Indicatorsprofitability

profitability economic cost sale

Conventionally, all profitability indicators calculated in financial analysis, can be divided into groups:

Indicators of profitability of economic activities;

Indicators of return on costs and return on sales;

Financial profitability indicators.

Profitability of economic activity (k) characterizes the rate of compensation for the entire set of sources used by the enterprise, and is determined by the ratio of the amount of income of investors and creditors (P) to the amount of capital invested by them (IC):

k = P/IR (1.1)

When assessing the efficiency of economic activity, it is necessary to use the sum of all assets as invested capital, since their total value takes into account all the debts of the enterprise, including those for operation. Total assets are used in profitability calculations to evaluate business performance by external users of information. This is due to the fact that owners and creditors invest funds in an enterprise whose management has complete freedom of action to allocate these funds. Cash can be invested in such assets that short term do not bring profit, but long term the enterprise will benefit from their investment.

One of the performance indicators production activities enterprise is an indicator of production profitability. When calculating it, the value of production assets is used as invested capital as the sum of fixed production assets (F) and material working capital (E).

The cost of working capital can be used as invested capital in profitability calculations.

When calculating profitability, it must be borne in mind that the amount of capital invested in an enterprise changes during the period of income, so it should be determined as its average value. In this case, the most correct is to calculate the average chronological amount of invested capital.

When calculating profitability indicators, various indicators of an enterprise’s income can be used: gross profit, sales profit, profit before tax, net profit (according to Form No. 2 “Profit and Loss Statement”). There is a relationship between return on assets indicators, asset turnover and return on sales, which can be obtained by modeling the return on assets ratio using factor dependencies.

Return on assets is determined by the formula:

k = P/A, (1.2)

where k is return on assets;

P - profit before tax;

A is the average annual value of assets.

Let's divide the elements of this formula by one value - sales revenue (N), we get:

k = Р/N * N/А, (1.3)

where P/N is the profitability of sales by profit before tax;

N/A - asset turnover (resource efficiency ratio).

We obtain a formula that reflects the relationship between the indicators of return on capital (kp) and its turnover (ka):

k = kp* kа (1.4)

Return on assets can be increased while return on sales remains unchanged by accelerating asset turnover. And, conversely, with constant resource productivity, the profitability of assets can increase due to an increase in the profitability of sales.

Thus, the profit of the enterprise received from each ruble of funds invested in assets depends on the speed of turnover of funds and on the share of profit in the proceeds from the sale.

Financial profitability characterizes the effectiveness of the investments of the owners of the enterprise, who provide the enterprise with resources or leave at its disposal all or part of their profits. In the very general view financial profitability is determined by the formula:

k = P/ SK, (1.5)

where k is financial profitability;

P - net profit;

SK - average cost of equity capital.

When calculating profitability, the cost of equity capital should be calculated as the average value for the period, since during the year equity capital can be increased through additional cash deposits or through the use of profits generated in the reporting year.

3. Methodsmanagementprofitability

Since profit takes part in the calculation of any profitability indicator, to increase the profitability of an enterprise you need to:

§ increase the volume of trade turnover;

§ change the structure of trade turnover (for example, expand the range);

§ speed up the promotion of goods into the retail chain;

§ improve the trade and technological process of selling goods;

§ influence the number and composition of workers, as well as use a system of economic incentives for their work and increase labor productivity (you may have to influence the technical equipment of workplaces);

§ improve the state of the material and technical base of the enterprise;

§ develop a retail network by working on the territorial location of points;

§ increase the amount of working capital;

§ check the pricing procedure;

§ organize work on timely collection of receivables;

§ work with the business reputation of the enterprise;

§ reduce current costs, or switch to saving mode.

To quantify the interaction of profitability indicators and the influence of other factors on them, factor and index analysis methods can be used.

4. RolemanagersVachievingprofitability

The manager responsible for the project or investment must play a leading role in forecasting sales, prices and transaction costs, on the basis of which cash flows will be calculated. The accountant may well be prepared better than a leader to carry out cash flow analysis, but forecasting sales volumes, prices, employment and operating costs cannot be transferred to it. This is an area in which the manager must draw on his own market knowledge and experience.

The manager also needs to know better than the accountant about the main dangers that the project may face. Therefore, it is the manager who must initiate specific “what if” questions on the basis of which calculations will be made. The accountant may perform additional “what if” calculations to clarify situations that particularly impact profitability.

The manager must not only understand what the answers calculated by the accountant mean, but also know why the company needs such high profitability. Achieving profitability only at the level of current overdraft interest rates is completely insufficient because:

§ managers tend to be optimistic about future cash flows from investments, so it is necessary to make appropriate adjustments in relation to the required level of profitability;

§ sometimes projects encounter serious obstacles or are abandoned after significant funds have been spent;

§ in some industries, approximately 1/5 of all investments do not generate cash flows, since they are spent on repairs or replacements technological equipment, or due to new legal requirements;

§ a certain share of the income should be provided, which will be redistributed in favor of shareholders in order to reward them for the commercial risk of the project.

Therefore, it is not surprising that many companies want to have a profitability of at least 25% per annum before paying corporate tax.

5. ProfitabilityHowfactoradoptioninvestmentsolutions

Many companies set a single minimum profitability for everyone investment projects(investment portfolio is strategic plan how the investor’s funds will be distributed and multiplied), regardless of the degree of risk and uncertainty. The advantage of this approach is its simplicity. However, as a result, decisions may be made:

§ on the rejection of projects with minimal risk and uncertainty (for example, investments in order to reduce existing costs), since their profitability is slightly below the established minimum;

§ on the approval of risky projects, for example, investments in promoting new products on the foreign market.

Investment banks and financial institutions recognize the need for an acceptable balance between potential risk and reward. For example, they expect different returns from a loan for a buyout of a company by its managers and from venture capital investments in the capital of new companies.

Some large firms take a similar approach, setting different rates of return depending on the degree of risk associated with different categories of projects. These categories could be:

§ increasing efficiency existing business, for example, investments in automation, mechanization of loading and unloading operations, modernization of control and measuring equipment;

§ expansion of sales of manufactured goods or services in developed markets within the country and abroad;

§ entry with new goods or services into developed domestic or foreign markets or, conversely, with mastered goods to new markets;

§ new product or service in a new domestic or foreign market.

It is clear that for each subsequent category the rate of return must increase. Establishing differentiated profit margins requires considerable experience. However, you can use a very flexible, albeit somewhat subjective, approach to making investment decisions. Low-risk projects should probably be approved even if the required profitability is not fully achieved. On the contrary, investments in new business lines that demonstrate only ordinary profitability require the most meticulous attitude.

We must never forget that an acceptable level of estimated profitability is not an exhaustive argument when making investment decisions. In addition, the proposed project must:

§ comply with the chosen strategy and commercial nature of the company;

§ be the most appropriate way to achieve the goal after considering the various available alternatives;

§ ensure an acceptable balance between potential reward and risk;

§ Be acceptable to customers, suppliers and staff, as appropriate.

Listliterature

1. Babo A. Profit. Per. from French / General ed. and comment. IN AND. Kuznetsova. - M.: JSC Publishing Group “Progress”, “Univers”, 2003.-487 p.

2. Milner B., Liis F. Management of a modern corporation. - M.: 2001.-436s.

3. Shein V.I., Zhuplev A.V., Volodin A.A. Corporate management. - M.: 2001.-458 p.

Posted on Allbest.ru

...

Profitability indicators

Profitability Management Methods

Other materials

Send your good work in the knowledge base is simple. Use the form below

Similar documents