Return on fixed assets shows how much. Indicator of profitability of production assets

shows the efficiency of using fixed assets and other non-current assets of the enterprise, measured by the amount of profit per unit of cost of funds.

Profitability ratio of fixed assets and other non-current assets - formula

Profitability ratio of fixed assets and other non-current assets = Profit from sales / Average value of fixed assets and other non-current assets for the period

An increase in this ratio indicates an excessive increase in mobile means, which may be a consequence of:

• formation of excess inventories of inventory items,
• overstocking of finished products as a result of decreased demand,
• excessive growth of accounts receivable or cash.

Was the page helpful?

More found about the profitability ratio of fixed assets and other non-current assets

1. Analysis of long-term financial decisions of a corporation based on consolidated statements
   As follows from the calculations, the decrease in the capitalization ratio is associated with an increase in the return on invested capital, i.e., the growing efficiency of operations makes it possible to pay high dividends due to an increase in the share... An increase in the internal growth rate had a very insignificant positive impact on the profit capitalization ratio The third decision of the corporation, the decision on investments is quite Input coefficient fixed assets % 14.04 22.86 Ratio of increase in non-current assets to revenue % - 8.74 Rate
2. Analysis of financial statements. Practical analysis based on accounting (financial) statements
   The diversion of funds into non-current assets also effectively amounts to 24% of the return on each ruble. The growth rate of equity capital is high... The effective value of the coefficient of the payback period of equity capital indicates that with the existing profitability of the shareholders' investments completely... VAT on acquired assets 1026 4.6 1504 5.4 1978 6.2 2206 6.0 2340 5.4 3 Other working capital 548 2.5 617 2.2 285 0.9 464 1.3 575 1.3 TOTAL working capital... Analysis of the structure of working capital formation the vertical method revealed that the main components are production working capital and working capital
3. Current issues and modern experience in analyzing the financial condition of organizations - part 8
   The indicator of the ratio of receivables to total assets is defined as the ratio of the amount of long-term receivables, short-term receivables and potential current assets subject to return to the total assets of the organization Coefficients characterizing the business activity of the debtor 10 Return on assets Return on assets characterizes the degree of efficiency in the use of property... Based on the results of an analysis of internal conditions activities, documents containing an analysis of the financial condition of the debtor indicate a the main areas of activity, the main types of products, current and planned production volumes, b the composition of the main ... Based on the results of this analysis, the documents containing an analysis of the financial condition of the debtor indicate a data on the main suppliers of raw materials and supplies and the main consumers of products separately by external and internal market, as well as volumes of supplies for at least a 2-year period preceding the initiation of bankruptcy proceedings and the period of bankruptcy proceedings against the debtor b data on prices for raw materials and materials in dynamics and in comparison with world prices c data on prices for products in dynamics and in comparison with world prices for similar products d data on terms and forms of payments for products d the impact on the financial condition of the debtor of the share in the markets of its products changes in the number of its consumers activities of competitors increases in prices for the goods used by the debtor work services for replacing suppliers and consumers price dynamics for the debtor's shares volumes terms and conditions for attracting and providing funds Appendix 7 Appendix 3 to the Decree of the Government of the Russian Federation of June 25, 2003 No. 367 On approval... Analysis of non-current assets includes an analysis of intangible assets of fixed assets funds for construction in progress income-generating investments in material assets long-term financial investments other non-current assets Analysis of current assets includes analysis of value added tax reserves
4. The impact of IFRS on the results of the analysis of the financial position of PJSC Rostelecom
   Immobilized assets, among others, according to the rules of RAS, are represented by non-exclusive rights that are reflected in the transformed financial statements according to IFRS according to Total liquidity ratio 2.0-2.5 0.549 0.434 -0.115 0.745 0.501 -0.244 5 Working capital ratio ≥ 0.1 - 0.821 -1.306 -0.485 -0.341 -0.996 -0.655 Source... RAS Table 7 Profitability of PJSC Rostelecom according to the requirements of RAS and IFRS for 2013-2014 Name of indicator 2013 2014 ... RAS - 1 Return on total assets 0.081 0.057 -0.024 0.066 0, 086 0.02 2. Efficiency of non-working capital 0.077 0.053 -0.024 0.066 ... Comparison of the main indicators characterizing the financial condition according to RAS and IFRS to identify the best value of the indicator according to ... RAS Working capital ratio -0.821 -1.306 0.485 59.1 according to RAS Autonomy coefficient financial independence 0.444 0.356 0.088 19.8
5. Financial security of the company: analytical aspect
   Margin of financial strength % 14.5 13.9 9.25 Effect of operating leverage 1.22 1.08 1.4 Current liquidity ratio total... Return on fixed assets return on capital RUB RUB 9.9 4.56 4.79 Finished product turnover 3.6 2 2.14 Indicators
6. Assessing the efficiency of using financial resources of organizations in the regional agricultural sector
   The capital productivity of fixed assets and other non-current assets characterizes the efficiency of their use, measured by the amount of sales per unit value of the assets... To analyze the profitability of an organization's activities, profitability indicators are used. Next, we will analyze the profitability ratios of agricultural organizations and also analyze the relationship between profitability indicators and
7. Current issues and modern experience in analyzing the financial condition of organizations - part 5
   Krk return on equity If the financial ratios fully comply with their minimum standard levels, the rating number will be... Ko is defined as the ratio of the difference between the volumes of sources of equity and the actual cost of fixed assets and other non-current assets to the actual cost of the current assets available to the organization
8. Directions for analyzing the financial condition of an organization in relation to management goals and user needs
   The results of the analysis positively characterize the financial condition of the construction company regarding the possibility of bankruptcy; the organization is completely autonomous; the autonomy coefficient is approximately equal to 1; the share of equity capital is about 50; the share of current assets is mobile; the share of current assets is 76%; the activity is financed from its own funds; the share of its own sources of financing; 79%; debt A construction organization is capable of... Profit from core activities is more than 30 times higher than the amount of interest accrued for the analyzed period Analysis... With regard to the peculiarities of disclosing information about capital in the balance sheet, it is advisable to divide the total capital of the organization into non-current working capital and borrowed capital. Thus, present the grouping of return on capital ratios in relation to the purposes of the analysis of Table 4 Financial return on capital in the reporting year 2011 ... Financial return on capital in the reporting year 2011 decreased, as evidenced by profitability indicators as a result of a decrease in net profit by 8126 thousand rubles due to increased construction costs and a decrease in other income As a result of faster growth rates in OJSC Stroyproekt, revenues exceed the growth rates of construction Profitability of non-current capital Net profit Non-current assets 74 59 Return on working capital Net profit Current assets
9. Development of a model for optimizing the capital structure of an industrial enterprise in conditions of unstable financial development
   According to the criterion of maximizing the profitability - risk indicator, the capital structure with a minimum share of borrowed funds is also optimal, since in an enterprise, with an increase in the share of borrowed capital, the level of financial risk increases... With the resulting capital structure, the profitability of its own is maximized 33.79%, subject to compliance with the allocated restrictions K1 0.73 ≥ 0.5 K2 0.351 ≥ 0.1 ... Forecast values ​​of the main parameters of the financial and economic activities of JSC VATI for the next financial year are presented in Table 4. Table... Indicator for 2014 thousand rubles Growth coefficient Forecast for 2015 g thousand rubles Revenue 1,518,288 1.12 1,700 ... Interest payable 187,232 1.00 -187,232 Other income 261,454 1.00 261,454 Other expenses 283,802 1.00 -283,802 Profit... Total assets 2,445,168 1.05 2,567,426 Non-current assets 1,428,813 1.00 1,428,813 Current assets 1,016,355 1.12
10. Forecast balance taking into account current trends, forecast volumes and profitability of sales, changes in non-current assets
    EkAnalysis Forecast balance, taking into account the current trends in forecast volumes and profitability of sales, changes in non-current assets of Arsenal CJSC as of 01/01/2011 By selecting the optimal ratio of coefficients L4zh... Forecasted revenue from other activities, including trading for non-trading organizations, rental of social services, etc.. . Forecast change in the value of non-current assets 0 t RUB 7. The amount of long-term borrowed funds did not change in the forecast period
11. Comparative analysis of Russian and foreign approaches to analyzing the financial condition of an organization
    In Russian and foreign educational literature, there are four main groups of indicators for analyzing the financial condition of an organization. These include the following: 1. Liquidity ratios B... Profitability ratios In foreign practice, this group of indicators is called profitability ratios 4. Business activity turnover ratios... In Russian educational literature In the literature, there are three main indicators of liquidity and solvency of a commercial organization, which are presented in absolutely all textbooks: Absolute liquidity ratio of short-term liquidity DS KFV KO 1 where DS is KFV cash... Shows what part of the short-term obligations the organization can pay off using cash from short-term financial investments and receipts from debtors Current liquidity ratio coverage ratio ObA KO... Some authors understand the indicator of own working capital as the difference between equity and non-current assets, others - the difference between current assets and short-term liabilities or the sum of equity and long-term liabilities minus non-current assets. Still others suggest calculating indicator of own working capital in two ways Own working capital and... P2 - short-term liabilities short-term loans and borrowings and other short-term liabilities P3 - long-term liabilities long-term liabilities deferred income estimated liabilities Ratio
12. Assessment of the borrower's creditworthiness based on financial statements
    S Intangible assets 110 6 119 5 798 Fixed assets 120 220 030 228 382 Construction in progress 130 4 486 27 798 Income Other non-current assets 150 - - Total for section I 190 231 505 266 017 II ... At the end of the year, animals in cultivation and fattening e 212 - - costs in work in progress 213 - - finished products and goods for resale 214 9,086 32,658 goods shipped 215 - - deferred expenses 216 1,911 5,919 other inventories and costs 211 - 42 Value added tax on acquired assets 220. .. Value Coefficient value Characteristics of the financial condition of the borrower 1 Autonomy independence coefficient coefficient K 1 0.629 High Return on assets coefficient coefficient K 6 0.220 Very high Well-being 7 Asset turnover ratio turnover K
13. Current issues and modern experience in analyzing the financial condition of organizations - part 4
    Sources of formation of own working capital 92368 92398 93096 30 698 2 Non-current assets 38554 35900 33793 -2654 -2107 3. Availability of own working capital 53814 56498 59303 ... Excess deficiency - the total value of the main sources of formation of inventories and costs -81104 -75454 -591 81 5650 16273 2 The ratio of borrowed and equity funds shows what part of the organization’s activities is financed by... The optimal value of the indicator is 1, and the lower it is, the more stable the financial position of the organization will be, all other things being equal Kszs Raised capital Equity capital 19 3 Coefficient of overall financial independence reflects Return on assets ratio K6 0.005 0 0.003 7 Asset turnover ratio K7 1.613 1.141 1.132 For... Managing the flow of funds in the course of trade and production activities leads to an improvement in the financial condition of organizations to increase their financial... Assessment of business activity being an integral part of financial analysis state allows you to assess the results and effectiveness of the current main production activities. The areas of analysis of business activity are the comparison of the main quantitative and qualitative results of activities
14. Analysis of the weighted average cost of invested capital in a value chain analysis system
    Other non-current assets 110,179 40,754 33,546 Non-current assets held for sale - - 194,286 BALANCE SHEET 8,716,990 13,075 ... Risk premium 5.80 6.00 6.20 Activity beta coefficient 0.74 0.76 0 .75 Spread of bank profitability with a high borrower rating of 2.00 ... The accelerated growth of fixed expenses is associated with the dynamics of other financial results, namely, with the fact that other income decreases and other expenses grow significantly, increasing the total value of fixed expenses. As for the level of financial risk, then. .. In 2008, there was an even more significant increase in the value of equity capital, while the main factors were the growth of the company’s operational and financial risks, the contribution of factors was 37.92 and 33.09%, respectively... Cash Short-term liabilities 0.2 and above 0.08-0 .2 0.08 and below Operating financial stability Return on sales
15. Enterprise credit policy: transition to system management
    VAT on acquired assets other current assets art. 210 220 270 Long-term liabilities P3 long-term liabilities art. 590 Difficult to sell... From the composition of slowly realizable assets it is necessary to exclude the amount of long-term receivables, which in its economic content is a non-current asset and count on the possibility of turning this balance sheet item into cash in the short term... Two main approaches can be distinguished that characterize the features of constructing an enterprise's limit policy. In accordance with the first approach, the limit of a specific... In accordance with the first approach, the limit of a specific debtor is determined on the basis of accumulated statistics of average monthly cash receipts, and in accordance with the second based on the total debt limit calculated for the enterprise in... Calculation algorithm Absolute liquidity ratio K abs A 1 P 1 P 2 Quick liquidity ratio... A 3 A 4 Return on sales ratio P pr P pr B where P pr - profit from sales B
16. On the problem of choosing criteria for analyzing the viability of an organization
    OS of profitable investments in material assets of long-term financial investments and other non-current assets Scientists 21 identify criteria for the competitiveness of the economic sustainability of an organization that are modeled on accounting... Ratio of equity and debt capital 0.601 11 Equity ratio 2 12 Current liquidity ratio of KTL 0.1 13. The ratio of profit from... As follows from the data in Table 3, the authors of the models under consideration give preference to such factors as the share of current assets in the organization’s property, return on assets on retained earnings, profitability of core activities, capital productivity, return on equity, despite different ideas about the priorities of factors. In Table
17. Analysis of financial and economic activities for administrations of constituent entities of the Russian Federation
    In 2014, return on assets increased by 23.202 and amounted to 23.987%, i.e. the enterprise began to use its property... K1 - current liquidity ratio K2 - equity ratio Current liquidity ratio K1 - characterizes the equity ratio is defined as the ratio of the difference between the volumes of sources own funds and the actual cost of fixed assets and other non-current assets to the actual cost of the current assets available to the enterprise
18. Completeness and reliability of the debtor's financial analysis in bankruptcy proceedings
    The sum of the value of intangible assets without business reputation and organizational expenses of fixed assets without capital costs for leased fixed assets in-progress capital investments without incomplete capital costs for leased fixed assets profitable investments in tangible assets long-term financial investments of other non-current assets OA Current assets The sum of the value of inventories without the cost of shipped goods long-term accounts receivable... The amount of loans and credits subject to repayment within 12 months after the reporting date accounts payable debt to founder members for the payment of income and other short-term obligations VN Net revenue Revenue from the sale of goods, performance of work, provision of services for... In our opinion coefficient analysis of the solvency of financial stability and business activity of Table 3 takes into account all the indicators necessary for... Ra Return on assets % PE U CA P Degree of efficiency in the use of the organization's property of professional qualifications of management... RF 3 years In addition to the indicators of analysis of the debtor's business activity allowing to evaluate How effectively does the enterprise use its funds? Add capital productivity, which characterizes the amount of revenue from sales per ruble of fixed assets turnover
19. Methods for assessing the value of a company in M&A transactions using the example of the takeover of JSC CONCERN KALINA
    Kalina, the following conclusions were made: own working capital differs significantly from zero in a positive direction, which indicates the inefficiency of the use of resources; the autonomy coefficient slightly exceeds the standard, which indicates the company’s tendency to reduce efficiency; the permanent asset index shows a decrease in the company’s activity in using its own funds to finance non-current assets; tendency to increase the share of long-term liabilities liquidity ratios are below standard values... Individuals 165092 2.56 Other legal entities 1006342 15.63 Total 6438348 100 The company's position in the matrix of financial strategies also... Reinvestment rate - 76 92 87 - - Profitability equity - 0.18 0.13 0.28 - - Sustainable growth rate 15.68 13.54 11.71 ... Sareh capital allocated for the acquisition and modernization of fixed assets thousand rubles 940813 362026 860118 3123011 2129336 2439278 2778093 2817892 FCFF freedoms ny cash... We have projected amounts of debt and cash calculated with the above assumptions. However, we do not have sufficient information to make an adjustment for
20. Assessing the risk of bankruptcy probability using logit models
    OD where VAsk - adjusted non-current assets, i.e. minus goodwill as part of intangible assets and capital... Vm - average monthly gross revenue, i.e. revenue without deduction of indirect taxes received for the reporting period divided by the number of months in the reporting period 2 Coefficients characterizing financial stability organization 2.1 Coefficient of autonomy of financial independence Kfn Kfn reflects the share of assets ... Al TO where Al is liquid assets calculated on the balance sheet and its annexes as the amount of cash short-term financial investments of goods shipped finished goods goods for resale short-term receivables and other current assets The critical value of Ktl ≥ 1 1. If CPS ≤ 6 months and... Fifthly, existing models use in their analysis a limited range of indicators that determine liquidity, solvency, profitability and, as a rule, are expanded or modified Western models of the 60-80s of XX in the Circle ... X5 ratio of fixed capital to net assets X6 - ratio of working capital to sales volume Further as... R3 - absolute liquidity ratio ratio of cash to current liabilities In this case, for the first model M V Evstropov determines the effective threshold

Profitability is a parameter that many investors consider key when making decisions about investing money in a particular project. Many current and potential entrepreneurs also adhere to the same position. A particular area of ​​business is often considered for the prospects for carrying out commercial activities in it, primarily based on the expected results in terms of profitability. The corresponding indicator may, however, be correlated with a variety of components of the firm's business model. Among these are fixed assets. What are the specifics of calculating profitability in relation to these? What might be the usefulness of determining its indicators from a business development point of view?

Definition of profitability

Before talking about what profitability of fixed assets is, let's study the definition of the corresponding term in a broader interpretation. What are the common theses of researchers regarding the concept under consideration? Profitability most often refers to the level of excess of income over expenses of an enterprise, which is expressed as a percentage. As a rule - in annual terms. If the second component is greater than the first, profitability is assessed as negative.

The term in question may be similar, for example, to bank interest. A depositor, giving a financial institution a certain amount of money as a deposit, comes back after some time, for example a year, and takes it back with interest. In turn, an entrepreneur, having invested in a certain business, after a certain time has the right to expect a return on his investment, as well as additional interest on top, which will determine profitability.

In some cases, the term in question has a direct connection with the concept of profitability. However, their identification is not always correct. Profitability is a relative indicator, profitability is an absolute indicator. An enterprise with revenue of 20 million rubles and a profitability of 10% will be more profitable than a company with revenue of 1 million rubles and a profitability of 70%. However, the corresponding concepts are adjacent. So, if there is no profitability, then there is no profitability. When building business plans, it is important, however, to correctly distinguish between these concepts and set the necessary priorities.

Definition of fixed assets

There is one more term, the essence of which is useful to study before exploring the specifics of such an indicator as profitability of fixed assets. What approaches to its interpretation are common among researchers? By fixed assets, economists most often understand the assets of a company, which are represented by real resources used as a tool in production. This could be equipment from factory lines, machines, computers. The fixed asset must have a relatively long service life - at least one tax year. The key criteria for classifying a resource as a fixed asset can be presented in the following list: the product is used in the production process regularly, is reimbursed in correlation with production cycles, retains functionality and form throughout its service life, and is used primarily by hired employees of the company.

A business can use a variety of profitability indicators. Let's take a closer look at them. This will be useful for determining the specific role played by the profitability of fixed assets: on the one hand, it is an independent indicator, on the other, it is an element of a comprehensive assessment of the quality of the business model.

Profitability indicators

First of all, we should highlight such an indicator as profitability of sales. It reflects the amount of profit that falls on the earned unit of a particular currency. To calculate this ratio, it is necessary to divide the net profit by the revenue for products sold. The indicators in both cases must be taken over the same time period.

The next significant indicator is return on assets. In order to calculate it, it is necessary to divide the total amount of profit for a specific period by the average value of the assets that the company has. This indicator allows, first of all, to evaluate the effectiveness of investing in a business, as well as the quality of enterprise management.

The next important indicator is the company's return on equity. It is determined by dividing the company's net annual profit by the average value reflecting the company's capital. Usually expressed as a percentage. The parameter under consideration is used to compare the performance of business activities of two companies operating in different industries. A similar need may arise if both companies have the same owner and he wants to evaluate the effectiveness of his investments in a particular segment. Sometimes this parameter is used to assess the prospects of business lending.

Specifics of profitability of fixed assets

Now we can study such a parameter as the profitability of fixed assets. Many economists consider it one of the most universal in terms of assessing the effectiveness of a company’s business model in the production part. Return on fixed assets shows the dynamics of return on investment in the corresponding resources - in the form of profit per individual monetary unit, which reflects the value of assets.

The significance of the indicator in question is explained by experts in that it allows one to analyze not only the economic efficiency of investing in production, but also the quality of work of specialists using the appropriate equipment, making it possible to identify problematic business processes that require optimization.

Calculation of profitability of fixed assets

How can you calculate the profitability of fixed assets? As is the case with its other varieties, the determination of the actual values ​​of the indicator in question will be based on the use in the corresponding “formula” of indicators reflecting the amount of total profit. In this case, this indicator should be used in combination with the costs of acquiring fixed assets. In this case, experts recommend calculating its average value. Which is quite logical - the value of funds can change during the tax year. The indicators obtained during the corresponding calculations can reflect how much profit each component of the production infrastructure located in the structure of fixed assets can bring.

What algorithms are used to calculate the profitability of fixed assets? The formula is as follows: take the amount of net profit and divide it by the value of the corresponding funds. The resulting result is multiplied by 100%. The formula used to determine such an indicator as the profitability of fixed assets is very simple, but it allows you to determine a figure that is extremely significant from the point of view of assessing the effectiveness of the company’s business model. The main purpose of the calculations in question is to determine the percentage of profit that correlates with the monetary unit of funds invested in fixed assets.

Practical significance of determining profitability

The profitability of fixed assets and accompanying indicators of business model efficiency are significant not only from the point of view of optimizing business management. Relevant indicators can become an important factor in the success of communications between enterprise management and external players - investors, banks, clients, and the state. A company that shows high profitability of fixed and working capital has a better chance of attracting third-party financing and participating in large-scale national and international projects as a state partner.

The same can be said about the prospects for obtaining profitable loans. Profitability - in all its variants - can be considered by banks as the leading criterion when assessing the solvency of a corporate borrower.

Specifics of analysis of profitability of fixed assets

In some cases, enterprises may conduct an analysis of the profitability of fixed assets. Such events can be organized for the purpose of:

• determining the most and least efficient production areas;
• assessing the quality of employee work;
• identifying factors that predetermine an increase in the profitability of production in general or in specific areas.

Analysis of profitability indicators of fixed assets, as a rule, is carried out in correlation with the study of other noted indicators.

Another important criterion - the profitability indicator of fixed assets should be considered in dynamics. It is possible that the introduction of new types of equipment into the production structure will have the most positive impact on the efficiency of the business model, but the moment that will indicate this must be recorded by the company’s management. One way to do this could be to calculate the profitability of fixed assets over time.

Note that it is very important in this case to correctly interpret the corresponding dynamic indicators. The structure of production and the specifics of products may change over time. Thus, a factory line for the production of winter clothing can be the main workshop at the beginning of the year, and at the end of the year it can be one of the secondary workshops in terms of the volume of products produced, while the goods already supplied to the market are sold out. Profitability indicators in the first case may be significantly lower - however, from the point of view of the business model, this may not be critical due to large sales volumes and high profit levels for business owners. However, if the corresponding indicator decreases while production volumes remain the same, such an indicator may indicate problems in the company's business model.

Profitability as an indicator of business model efficiency

The profitability of fixed assets and its analysis in combination with the study of other indicators can show whether the enterprise, in fact, needs to improve its production base, or whether the decrease in the efficiency of the business model is due to difficulties in the field of sales. It is possible that these problems will be interconnected. Thus, outdated technology for the production of winter clothing may predetermine the forced formation of high selling prices, through which the company will compensate for costs. As a result, sales may decline due to the fact that buyers will not be ready to purchase things at established prices or will be able to buy cheaper from competitors.

An increase in the profitability of fixed assets, recorded as a stable trend, may indicate that the technological processes at the enterprise correspond to current market demands. The use of new solutions on factory lines can predetermine a reduction in costs, resulting in the formation of low prices and a subsequent increase in consumer demand for the company's products, which can provide either sufficiently high profitability of the business as a whole, or the desired level of profitability of the company.

Profitability as an indicator of investment quality

The profitability of fixed assets characterizes the company not only from the point of view of the efficiency of production lines and sales dynamics. This indicator can also be significant in terms of assessing the quality of distribution of investment capital among certain structural divisions of the business.

A situation is possible in which the management of an organization spends a large amount of money on updating fixed assets, after which the owners will want to evaluate the profitability of the corresponding resources for different periods. If they vary downwards, and, moreover, are clearly not proportional to the ratio of prices for old and new equipment, then it may be useful for the company’s managers to reconsider their strategy for investing in the appropriate production resources. An exception, however, may be a situation in which the company's net profit increases despite a decrease in the profitability of fixed assets.

Is greater profitability always preferable for a company?

Can we say that a large value of the indicator under consideration clearly characterizes the business on the positive side? In general this is true. A high return on fixed assets indicates, on the one hand, low costs of the company, and on the other, a sufficient pace of sales. Both can be predetermined by the manufacturability of the production process, the provision of which largely depends on the competence of the company’s management to invest in certain solutions.

At the same time, too high profitability of a business, including in terms of measuring the corresponding indicator for fixed assets, may also indicate the unrealized potential of the company in terms of market expansion, low competition in a particular segment of economic activity, and also that the company may be saving on significant expense items - for example, social ones.

In turn, low profitability of fixed assets shows, on the one hand, that management is not investing very effectively in the modernization of production, on the other hand, that the company may be operating in a segment where there has been quite tough competition, in which it is difficult to make specific production goods are fundamentally more dynamic, and also reduce production costs. It is useful to correlate the corresponding parameter, as we noted above, with profitability. A high-volume firm with lower net profitability may generate more capital than a lower-volume firm that is accompanied by high performance of the corresponding type. A similar pattern may also be characteristic of the correlation between profitability and return on fixed assets. If the owner of the company is satisfied with the net capital extracted in the form of dividends, then the profitability factor may be secondary for him.

The desired result of every enterprise is profit. However, profit in absolute terms (in rubles, thousands or millions) is just a number on the income statement. For the owner or investor, it is, of course, important, but not informative enough. In order to understand how hard this profit was obtained, there are relative indicators of profitability, called profitability indicators. One of them is production profitability.

Profitability of production correlates the amount of profit received with the amount of funds that made it possible to obtain it, shows the amount of profit per 1 ruble. spent production assets. The fewer funds are used to obtain a certain amount of profit, the higher the profitability of production, and therefore the higher the efficiency of the company.

Read our articles about other profitability indicators:

• “Determining return on assets (balance sheet formula)”
• “Determining return on equity (formula)”

Production profitability formula

Profitability of production is the ratio of the total amount of profit (balance sheet profit) to the average annual cost of fixed and working capital.

The formula for calculating production profitability is as follows:

Rproduct = Pr / (OF + ObS) × 100,

Rproduct—production profitability;

PF - average cost of fixed production assets for the billing period;

OBC is the average cost of working capital.

Where to get the numbers for calculations

Information for calculating production profitability is taken partly from financial statements and partly from accounting analytics.

Thus, we obtain the amount of balance sheet profit from the statement of financial results - from line 2300 “Profit (loss) before tax” of Form 2.

Read more about this report in the article “Filling out Form 2 of the balance sheet (sample)” .

Data for the denominator of the fraction will most likely have to be looked for in analytical accounting registers. It is unlikely to be possible to take figures from the balance sheet. For example, because it reflects aggregate data on the enterprise’s fixed assets, and to calculate the profitability of production, the balances of production assets are needed. This means that detailed information about the OS is needed.

Production profitability, product profitability and sales profitability - is there a difference?

Of course there is. These are separate types of profitability, three independent indicators. It has already been said above that production profitability shows the share of profit per 1 ruble. spent production assets.

In turn, product profitability shows the amount of profit per 1 ruble. cost (full or production). It is calculated using the formula:

Rpr = Pr / Ss × 100,

where: Rpr - product profitability;

Pr - profit;

CC - cost price.

As for the profitability of sales (it is also called total profitability), it carries information about the amount of profit per 1 ruble. revenue. It is calculated using the formula:

ROS = Pr / Op × 100%,

where: ROS - return on sales;

Pr - profit;

Op - sales volume or revenue.

As you can see, the indicators really differ both in meaning and in calculation. And they should not be confused.

% (percent)

Explanation of the indicator

The difference between the profitability of production assets and the return on assets is that the first indicator takes into account only productive assets, that is, those that take part in the production process. These include fixed assets (which are introduced into the production process), inventories, etc. The indicator is calculated as the ratio of net profit to the average annual amount of production assets. It is an indicator of the efficiency of the company's production process.

Standard value:

Obviously, the company will be interested in higher values ​​of this ratio, since this will indicate the effective use of income-generating assets. The value should be compared with the value of competitors.

Directions for solving the problem of finding an indicator outside the standard limits

If the current and planned level of equipment utilization allows you to sell part of the fixed assets (if they are not needed in the near future), then this should be done. If the inventory level is too high, then it is necessary to optimize its structure and sell the excess. In the future, it is necessary to maintain a minimum amount of inventory, but which will ensure a continuous production process.

Calculation formula:

Return on production assets = Net profit (loss) / Average annual amount of fixed assets and inventories * 100% (1)

Average annual amount of fixed assets and inventories = (Size of fixed assets and inventories at the beginning of the year + Size of fixed assets and inventories at the end of the year) / 2 (2)

To more accurately determine the average annual amount, you can use the indicators at the end of the quarter or at the end of the year:

Average annual amount of fixed assets and inventories = (Sum of cost of fixed assets and inventories at the end of each quarter) / 4 (3)

Average annual amount of fixed assets and inventories = (Sum of cost of fixed assets and inventories at the end of each quarter) / 12 (4)

The choice of formula depends on the capabilities of the person analyzing the data and what information he has.

Calculation example:

Company OJSC "Web-Innovation-plus"

Unit of measurement: thousand rubles.

Balance	On 31 December 2016	On 31 December 2015	On 31 December 2014
Assets
I. NON-CURRENT ASSETS
Fixed assets (residual value)	89	88	88
TOTAL FOR SECTION I	89	88	88
II. CURRENT ASSETS
Productive reserves	56	58	59
Unfinished production	61	67	69
TOTAL FOR SECTION II	353	332	359
Balance	442	420	447

Return on production assets (2016) = 93/ (89 /2 + 88 /2 + 56/2 + 58/2 + 61/2 + 67/2) * 100 = 44.39%

Return on production assets (2015) = 98/ (88 /2 + 88 /2 + 58/2+59/2+67/2+69/2) *100 = 45.69%

In general, the profitability of production assets remains at a stable level, which indicates an optimal structure of production assets. In 2016, every ruble invested in these asset elements resulted in 44.39 kopecks of net profit. Thus, the production process at OJSC “Web-Innovation-plus” is efficient.

We will consider the main profitability ratios and formulas for their calculation used in the practice of financial analysis.

Profitability ratios. Definition

Profitability ratios (Germanrentabel- profitable) – indicators reflecting the degree of efficiency of the enterprise. These indicators are relative and assess the profitability of various enterprise systems. The higher the profitability ratios, the more efficiently the enterprise's resources are used.

Profitability ratios serve as a management tool in the investment, innovation, personnel, pricing, production and marketing strategy of an enterprise.

There are many different profitability indicators; in this article we will look at the most frequently encountered and used in practice ratios. To calculate profitability ratios, it is necessary to have financial reporting data.

Let's consider 14 enterprise profitability ratios:

Return on assets ratio - ROA. 3 calculation formulas

Return on assets ratio(English)Return On Asset, ROA) – an indicator of the efficiency of an enterprise’s use of assets and is calculated as the ratio of the enterprise’s net profit (after tax) to the amount of assets. In other words, return on assets (ROA) reflects the profitability generated by both equity and debt capital. The higher the return on assets ratio, the more efficient the enterprise is.

Formula for calculating ROA. Option 1
The first option for calculating the return on assets ratio is the ratio of net profit after tax to average total assets. The calculation formula is presented below:

Net Income – net profit of the enterprise after taxation;

Total Asset – average total assets.

Formula for calculating ROA. Option #2

The second option for calculating the coefficient takes into account profit with interest on loans.

Tax rate – tax rate;

Percent on credits - interest on loans issued.

Formula for calculating ROA. Option #3

In practice, it happens that the third option is used to calculate the return on assets ratio, where the main difference is the use of profit before tax and before receiving interest on loans.

EBIT – profit before taxes and interest on loans (operating profit).

It can be noted that in all calculation formulas only the numerator changes, reflecting the various types of profit of the enterprise. The disadvantage of the return on assets ratio is the inability to take into account the costs of raising capital.

Return on total assets ratio - ROTA. Calculation formula

Return on total assets ratio (eng. Return On Total Assets,ROTA)– an indicator reflecting the profitability of using all assets of the enterprise. The return on total assets ratio is the ratio of the enterprise's profit before paying taxes and receiving interest payments to total net assets. This indicator shows how a company uses its assets before paying off its liabilities. The ROTA ratio differs from ROA in that its calculation takes into account operating profit, not net profit. The formula for calculating the indicators is as follows:

EBIT – operating profit before taxes and interest on loans;

Total Net Assets – the sum of all assets of the enterprise.

Return on equity ratio - ROE. Calculation formula

Return on equity ratio(eng. Return On Equity, ROE)– an indicator reflecting the efficiency and profitability of using equity capital. This ratio is often used by investors to evaluate capital-intensive enterprises and reflects the quality of equity capital management.

Investors often use this ratio to assess the effectiveness of an investment project or enterprise; for this purpose, the return on equity ratio is compared with the return on alternative investments or a risk-free interest rate (for example, with a bank rate). If the ROE indicator is greater than the profitability of the alternative project (risk-free rate), it means that the enterprise is being managed successfully. The formula for calculating the return on equity ratio is as follows:

Where:

Net Income – net profit after tax;

Shareholder's Equity – average annual share capital.

Return on invested capital ratio(English)Return on Capital Employed ROCE) – an indicator reflecting the profitability of using the invested capital of an enterprise. It is calculated as the ratio of net profit minus dividends on preferred shares to the average annual cost of share capital. This indicator is necessary to assess the effectiveness of equity capital management.

Formula for calculating ROCE. Calculation option #1

Net Income – net profit;

Preferred Dividends – dividends on preferred shares;

Common Equity – the average annual value of common share capital.

Formula for calculating ROCE. Calculation option #2

Below is the second option for calculating the return on invested capital:

EBIT - profit before taxes and interest on loans;

Total Assets – the sum of all assets of the enterprise;

Current Liabilities – short-term liabilities.

One of the varieties of ROCE is the ROACE ratio ( Return on Average Capital Employed) , where the average values ​​of the cost of capital for the entire period are taken. This indicator is used to analyze the effectiveness of investment projects.

Return on risk adjusted capital ratio RORAC. Calculation formula

Risk-adjusted return on equity ratio (eng. Return On Risk-Adjusted Capital,RORAC)– an indicator usually used to analyze the effectiveness of investment projects. The risk-adjusted return ratio makes it possible to compare different investment projects while adjusting for different levels of risk. The formula for calculating the indicator is as follows:

Where:

Allocated Risk Capital – maximum possible future loss or profit volatility.

Return on investment capital ratio - ROIC. Calculation formula

Return on investment capital ratio (eng. Return On Invested Capital, ROIC, ROI)– an indicator reflecting the profitability of an enterprise on investment capital. The return on investment capital ratio is used by investors to assess the effectiveness of an enterprise in creating added value on invested capital. If this indicator is high, then the enterprise is investment attractive for investors. The formula for calculating the return on investment capital ratio is as follows:

Where:

NOPLAT – net operating profit after taxes;

Invested Capital – investment capital of an enterprise.

Investment capital is the sum of the enterprise's equity capital and long-term liabilities.

Return on net assets ratio - RONA. Calculation formula

Return on net assets ratio (eng. Return On Net Assets, RONA)– shows the profitability of the enterprise’s net assets, and reflects how much profit is created for every 1 ruble. net assets. The return on net assets ratio is calculated as the ratio of the enterprise's net profit for the reporting period to the value of net assets. The formula for calculating the indicator is as follows:

Net Income – net profit before tax;

Fixed Assets – non-current assets;

Net Working Capital – current assets minus debt obligations.

Personnel profitability ratio – ROL. Calculation formula

Personnel profitability ratio(English) ReturnOnLabor,ROL)– an indicator reflecting the profitability of personnel, that is, how much added profit one worker creates. The formula for calculating personnel profitability is as follows:

Return on sales ratio – ROS. Calculation formula

Return on sales ratio(EnglishReturnOnSales,ROS)– an indicator reflecting sales efficiency. It is calculated as the ratio of profit from sales to revenue. The calculation formula is as follows:

Where:

EBIT - earnings before taxes and interest;

Revenue – revenue from sales.

Product profitability ratio(EnglishROM, return on cost) is an indicator reflecting the profitability of products sold and is calculated as the ratio of net profit to the cost of products sold. The analytical formula is as follows:

Cost Price – cost of products sold.

Profitability ratio of fixed assets (EnglishReturn on Fixed Assets, ROFA, R.F.A.) – an indicator reflecting the performance of fixed assets of production. The calculation formula is as follows:

Where:

EBIT – operating profit of the enterprise;
Fixed Assets – the annual average value of all fixed assets of the enterprise.

Return on current assets ratio(EnglishReturn on current assets, RCA) – shows the efficiency of working capital management of the enterprise and is calculated as the ratio of net profit to working capital.

Net Income – net profit of the enterprise;

Current Assets – current assets of the enterprise.

Net profit margin ratio(English NetProfitMargin, N.P.M.) – shows the share of net profit in the overall sales structure of the enterprise.

Where:

Net Income – net profit of the enterprise;

Operating profit margin ratio – OPM. Calculation formula

Operating profit margin ratio (English Operating margin OPM)– shows the share of operating profit in revenue from sales of the company’s products.

Operation income – operating profit of the enterprise;

Revenue – revenue from product sales.

Video lesson: “Calculation of 12 main profitability ratios”

Summary

In this article, we examined in detail the main enterprise profitability ratios, which reflect the profitability of various enterprise resources. The higher the profitability, the greater the effectiveness of resource management. The goal of all enterprises is to increase their profitability and therefore their value and attractiveness to investors and creditors.