The profitability ratio of the entire capital of the enterprise. Return on Total Assets. Conclusions from the calculations in the example

The essence of profitability indicators

Definition 1

Profitability characterizes the profitability of an activity. This is a relative indicator, expressed in the ratio of the invested funds and the income received. The value of the indicator has only positive values, since when the company receives a loss, profitability indicators are not calculated.

As such normative values There are no indicators of profitability, however, in various sources, you can find average statistical values \u200b\u200bby industry, country, etc.

Remark 1

Profitability indicators most fully reflect the efficiency of the enterprise, therefore they are widely used when carrying out financial analysis... Profitability can be analyzed both for the enterprise as a whole and for individual lines of business.

When deciding on investment, it is necessary to compare the profitability indicators of the organization with similar enterprises in other industries, interest rates on bank deposits, profitability valuable papers and others. If the profitability of the enterprise chosen for investment is lower than the income level in comparison with other possible ways of placing funds and the profitability does not show growth dynamics, then one should refuse to invest capital in this enterprise.

Remark 2

Return on equity reflects the income received per unit of investment.

Return on equity indicators

During the financial analysis, they calculate following indicators return on equity:

The return on total capital is expressed as the ratio of profit before tax to average annual cost total assets
Return on equity on net profit is calculated as the ratio of net profit to the average annual value of total assets
Return on long-term investment - the ratio of profit before tax to equity and long-term liabilities. This indicator is most interesting to investors when making a decision on investment, as it shows the efficiency of using the invested funds.
Return on equity - the ratio of profit before tax to the average annual cost of fixed assets
Return on working capital - the ratio of profit before tax to the average annual cost working capital
Return on equity - the ratio of net profit to the average annual cost of equity. This indicator is most interesting to the owners of the enterprise, as it characterizes the efficiency of using the owner's funds.
Return on borrowed capital - the ratio of profit before tax to the amount of borrowed capital.

Remark 3

At the same time, it should be understood that the greater the share of borrowed funds in the total capital of the enterprise, the lower the profitability, due to the payment for the use of borrowed resources (payment for using a loan, interest rate under a loan agreement, etc.).

When conducting financial analysis, the indicators of return on equity are considered in dynamics. If the indicators of the reporting period deteriorate in comparison with the previous one, the analysis identifies and analyzes the reasons for the decline in profitability and possible solutions to problems.

In addition to the amount of profit, when calculating the return on equity, you can use the indicator of revenue from product sales. In this case, the calculation characterizes the level of sales for each ruble of investments in the property of the enterprise.

In the article, we will review one of the indicators of the profitability of an enterprise - this is return on total capital... Here is a formula for calculating a financial indicator for the balance sheet, which you can use in the main indicators of a business plan, and also consider its economic meaning in financial analysis.

Is an indicator of the efficiency of using the capital of an enterprise Aggregate capital includes both circulating and non-circulating assets. Their profitability shows the profitability of the total capital of the enterprise in terms of economic activity.

This financial indicator is calculated together with and reflects the return on investment.

Return on total equity is not synonymous. Although sometimes they are combined. The difference is that the former tends to use operating profit (Sales Profit).

Return on total capital. Balance calculation formula

Sometimes, instead of “” in the numerator of the formula, you can use: Revenue (page 2100), Profit from sales (page 200), Profit before tax (page 2300).

The numerator contains the average value of Assets. It is necessary to take the value of assets at the beginning of the period, add up with the value at the end of the period and divide by 2. The reporting period can be - a quarter, six months, a year.

One of the drawbacks of this indicator is that it reflects the efficiency of the enterprise, depending on the amount of profit that it received in reporting period, but in the future, due to uncertainty, the company may face a different economic situation. If this indicator decreases, it is necessary to increase (for example, take additional credit funds) to increase it to target levels.

Standard value of the indicator

The normative value for this indicator is not regulated and the tendency of its change is estimated. The table below shows the relationship between the trend direction and the financial health indicator.

Profitability, which came to our language from German, as one of the synonyms contains the word "profitability" and essentially means the ratio of income to a predetermined firm resource, for example, capital.

If we talk about the enterprise as a whole, then they usually mean the profitability of all its resources taken together.

Return on equity as economic indicator became the main factor that determined the attractiveness of the company for investors in the long term.

This indicator informs about how much the ruble invested in the business gives the owner a profit.

An important part will be the profitability of the product, the calculation formula for which is well known to specialists.

But the starting point in assessing the company's performance is to compare it with the bank's rate of return on capital.

2. Formula of return on equity.

Typically, the return on equity formula is used when evaluating similar firms that belong to the same industry. Comparison of the result of the use of capital reveals the degree of preparedness of management personnel. From a mathematical point of view, the formula is simple.

The return on equity is:

- divide the net profit by the amount of capital;
- we multiply the quotient by one hundred percent.

The amount of capital is the value of the property, indicated in specific monetary terms on the balance sheet. It belongs to the owners of the company's shares minus the existing debts.

But gross profitability in business is a slightly different concept with a special financial expression.

The return on equity can be calculated using another formula. It is enough to multiply the return on assets with the leverage ratio.

Conclusions follow from the formula:

- rational use of investments gives a chance to increase the profit of shareholders;
- the income from the activities of the company is much higher than the lending rate.

The size of the financial leverage shows the efficiency of the borrowed funds turnover. Good management of a company means that financial leverage is numerically greater than one, but not very high. Its great importance is given by an excessively large share of loans, which is always associated with a high risk.

3. The formula for the return on total capital.

Aggregate capital combines non-circulating and circulating assets. Profitability informs them about the assets that the company managed to attract to receive revenue of one ruble.

With the indispensable consideration of this circumstance, an index of profitability of any enterprise is formed.
It is possible to assess the profitability of total capital only by the ratio of the price of all assets for a certain period on average and income before taxes were paid.

The return on total capital is learned from the ratio of profit minus interest and taxes to the company's assets.

Maximizing employee profitability means:

- the need to increase revenue;
- to reduce non-production costs and prime cost;
- to reduce the size of assets based on the reduction of accounts payable and receivable.

The formula for the return on total capital is the division of operating income by the size of assets. The resulting indicator resembles the return on assets. Attracting investment means in practice a deterioration in the return on total capital.

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4. Formula of the level of profitability.

There is in the economy the profitability of fixed assets, the formula for its calculation. And the level of profitability summarizes the results of the firm's work, reflects the profitability in relation to the business base.

The amount of profit, covering both production costs and sales, in excess of them forms net income, an indicator of the company's profitability. It is no coincidence that it is a reliable indicator of the quality of work.

The level of profitability correlates the value of current and fixed assets with the amount of income. Such assets form value. The smaller it is, the higher the result of the firm's activities.

The formula for the profitability level is simple:

- it is necessary to summarize the costs of fixed assets and current assets;
- divide the amount of income by the received amount of costs.

The level of profitability will be significant with good functioning of circulating assets, fixed assets, with their low price. The profitability ratio plays its role, the formula uses it when calculating information about the company's balance sheet, losses, income.

5.Formula of total profitability.

The overall profitability expresses the dependence of the normalized means of turnover, the average price of production assets and the balance sheet profit. The connection of funds with material and equivalent expenses forms the profitability of the company. It is the main indicator when analyzing the work of any company.

The formula for the overall profitability is as follows:

- the total amount of the balance sheet proceeds must be divided by the price of fixed assets of production, tangible assets in circulation, intangible assets (on average for twelve months);
- quotient multiply by 100 percent.

In fact, on an equal footing in the economy, total profitability and net profitability coexist, the formula of finished products and the entire company.

6. Formula of cost-effectiveness.

Analyzing the financial statements in order to determine the effectiveness of the use of material resources, it is impossible to do without a cost-benefit ratio.

It is used to characterize the profitability of production, indicates the income received by the company from the ruble involved in the manufacture and sale of products.

The formula for ROI as a percentage is calculated as follows:

- the net profit (in rubles) is divided by the cost price goods sold (in rubles);
- the resulting quotient is multiplied by one hundred percent.

Return on costs is related to the amount of cash inflow, which includes depreciation and net profit for the reporting period, as well as cost products sold, representing the total amount of expenses for it.

By characterizing the profitability of the activity, this formula complements the general economic position of the company.

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7. Formula of the threshold of profitability.

The threshold of profitability is revealed by such concepts as the number of products sold in kind, the profit of the enterprise. They are the guarantors of coverage of both conditionally fixed and variable costs with zero revenue.

The profitability threshold is represented by the sales volume. Under him, the company, having not achieved income, itself covers all the pressing costs.

This is the level of sales of products when the company, without receiving a loss, could not achieve in its activities and profits.

The formula for the threshold of profitability in rubles:

1. deduct variable expenses from income;
2. multiply the revenue by fixed costs;
3. the resulting product is divided by the difference.

Each company has its own rate of profitability, a formula for success. But in general, profitability is a relative measure. It can be expressed in income per unit of investment funds, and more often as a percentage.

8. Formula of profitability of the main activity.

The key indicator of the success of the enterprise was the profitability of its core business. Like other coefficients for assessing the economy, including the return on equity, the formula for the company's balance sheet, profitability expresses the efficiency of any process in production.

To determine the profitability of the main activity of the company, it is enough:

- a report in the form number two on losses and income;
- balance sheet in form number one.

To find out the profitability ratio of the main activity, you need to divide the sales income by the production costs. This coefficient denotes the amount of net proceeds from one ruble, which is spent on the manufacture of products.

The established profitability of profit, the formula for its withdrawal characterize the company as a whole and each area of \u200b\u200bwork separately.

9. Formula of return on investment.

The capital invested in the activities of the company has its own profitability.
Its formula:

1.the net operating income, excluding adjusted taxes, is divided by the capital investment;
2. the resulting quotient is multiplied by one hundred percent.

Investments mean only capital that is invested in the main production of the enterprise. And revenue in this case is taken into account only from the main activity. At the same time, the profitability of funds, the formula of which is known, complements the economic calculations.

Invested capital is the sum of current assets and net fixed assets, excluding non-interest bearing liabilities.

10. Formula of profitability of products sold.

Product profitability has three components:

1. The profitability of each product.
2. Profitability of products sold.
3. Profitability of marketable products.

Any indicators of profitability, the formulas of which are developed by economic science, are interconnected. So, the profitability of products sold is considered in connection with the proceeds from the sale of the released product, its cost in full. It is very important indicator the quality of the enterprise.

The profitability of products confirms the effectiveness of the costs of its production. The income from the sale crowns the labor efforts of the employees of the enterprise, therefore, it directly affects the wages and opportunities for expanding production. It is enough to know the cost price, profitability, how to calculate, the calculation formula, and then the economic situation in the company becomes clear.

The profitability of products sold is the ratio of the proceeds from its sale to the cost price in full. This simple formula is confirmed by practice.

It allows you to calculate one of the main economic results of a company and make a forecast for the future, taking into account potential opportunities.

Eloquent in this respect is the “net profit margin, the formula of which is also simple. It is not for nothing that economic science puts the company's profitability indicators at the forefront, since it is they who are able to really confirm the generalized characteristics of the results of labor and joint efforts of the company's employees.

There is a fairly wide list of indicators required to calculate the effectiveness of an organization. The main share in this group is occupied by different kinds profitability. They are necessary for a more complete and objective analysis of the results of activities.

What is profitability in simple words

Most often, it reflects how many kopecks of a particular type of profit an organization can get by investing one ruble in production. And in the case of a sales performance indicator, profitability shows the share of profit in revenue.

What types, indicators, profitability ratios exist

It is customary to distinguish several groups of indicators - production, sales, capital. In each category, 3-4 values \u200b\u200bare calculated. This is not to say that all indicators are equivalent and you can take only one from the group.

In order to assess efficiency, it is necessary to use the entire set of types of profitability.

Return on assets

They use profit before tax and reflect how effectively the main property of the organization is used and show how much profit the ruble of fixed and current assets will bring or the total value of the company's assets:

fixed assets (ROFA - return on fixed assets);
working capital (ROFA - return on currency assets);
assets (ROA - return on assets).

The basic earning power (BEP) ratio characterizes how much a company needs to earn to cover all costs.

Production and sales profitability

Calculated on the basis of profit from sales and show what the effectiveness of the main activities of the organization:

products (ROM - return on margin) characterizes how much profit from sales can be obtained from one ruble taken into account in the cost of manufactured products;
sales (ROS - return on sales) reflects the share of profit from sales in the total income of the enterprise;
staff (ROL - return on labor) describes how much profit the company will receive from the exploitation and employment of employees.

Return on equity

They take as a basis the net profit and characterize the efficiency of capital use for the purposes of the company's activities. Also, this subgroup can be calculated during planning and allows you to assess whether it is profitable to invest or borrow:

equity (ROE - return on equity) reflects the efficiency of using own funds in the activities of the enterprise;
invested, permanent capital (ROIC - return on invested capital) shows how many kopecks of net profit the organization will receive by investing one ruble;
borrowed capital (ROBC - return on borrowed capital) describes the feasibility of taking a loan. If the indicator is higher than the cost of borrowed funds, then it is profitable to take them, if lower, then the organization will incur losses.

Video - 12 Key Profitability Ratios:

How to calculate profitability

IN general view the profitability formula is the ratio of profit to part of the company's property, revenue or cost:

Profitability \u003d Profit / Indicator, the profitability of which needs to be found

For example, if you need the efficiency of fixed capital, then the numerator will be the profit from sales, and the denominator will be the average cost of fixed assets. In the case of the denominator, revenue is substituted as an indicator of sales.

The return on assets is usually found by balance sheet profit, production and sales - by profit from sales, capital - by net profit.

The data for the calculation is taken from the balance sheet and the income statement.

General formulas for calculating profitability

Assets:

ROFA \u003d BN / C inwhere

ROFA - profitability of non-circulating funds,

C vna - the average cost of non-current assets, rubles;

ROCA \u003d BN / C bothwhere

ROCA - profitability of working capital;

BN - profit before tax, rubles;

C both - the average cost of mobile assets, rubles;

ROA \u003d BN / C in + C bothwhere

ROA - return on assets;

BN - profit before tax, rubles;

C vna + C both - the average value of the sum of fixed and current assets, rubles.

Production and sales:

ROM \u003d PR / TCwhere

ROM - product profitability;

PR - profit from sales, rubles;

TC is the total cost;

ROS \u003d OL / TRwhere

ROS - return on sales;

TR - sales revenue, rub.

ROL \u003d PR / SSCHwhere

ROL - personnel profitability;

PR - profit from core activities, rubles;

SSH is the average number of personnel.

Capital:

ROE \u003d PE / SKwhere

ROE is the return on equity;

PE - net profit, rubles;

SK - equity capital, rubles;

ROBC \u003d PE / ZKwhere

ROBC - return on borrowed capital;

ЗК - borrowed capital;

ROIC \u003d PE / SK + DOwhere

ROIC - return on invested (constant) capital;

PE - net profit, rubles;

SK + DO - the amount of equity and long-term debt, rubles.

Balance calculation example

The company Ekran LLC ended the period with the following financial indicators. It is necessary to deduce the effectiveness of the organization for 2014. Average headcount staff of 25 people. Equity capital is 120,000 rubles.

Indicator name		The code	At 31 December 2013	At 31 December 2014
ASSETS
I. NON-CURRENT ASSETS
	Total for Section I	1100	100000	150000
II. CURRENT ASSETS
	Total for Section II	1200	50000	60000
PASSIVE
III. CAPITAL AND RESERVES 6
	Retained earnings (uncovered loss)	1370	20000	40000
IV. LONG TERM DUTIES		1410
	Borrowed funds		10000	15000

Return on assets calculation:

ROFA \u003d 48,000 / (100,000 + 150,000) / 2 \u003d 0.384

ROCA \u003d 48,000 / (50,000 + 60,000) / 2 \u003d 0.87

ROA \u003d 48,000 / (125,000 + 55,000) \u003d 0.26

Calculation of the profitability of production and sales:

ROM \u003d 50,000 / 25,000 \u003d 0.5

ROS \u003d 50,000 / 75,000 \u003d 0.67

ROL \u003d 50,000 / 25 \u003d 2,000

Return on equity calculation:

ROE \u003d 40,000 / 120,000 \u003d 0.3

ROBC \u003d 40,000 / 15,000 \u003d 2.66

ROIC \u003d 40,000 / 120,000 + 15,000 \u003d 0.296

Conclusions from the calculations in the example:

For the existing production, all indicators are at a normal level. It is obvious that it is profitable to use borrowed funds, employees work efficiently, the amount of working capital is optimal. It is worth paying attention to fixed assets, there is a possibility that it is not fully exploited or there are reasons that reduce the performance of non-current assets.

It is also advisable to analyze the situation with a large amount of equity capital, which reduces overall efficiency activities of the enterprise. At current rates, it is rational to use and restructure equity capital.

When is its calculation useful?

The indicator is required for qualitative assessment the efficiency of the enterprise. Absolute indicators, such as profit and cost, do not give a true picture of the bottom line of the organization.

They only show the effect of production. Profitability, in turn, allows you to assess how well and fully used the property and resources of the company... It shows how much money can be obtained from the exploitation of one or another type of own or borrowed funds.

All types of ROI are important to measure the effectiveness of an organization. Like others relative indicators, they allow not only to analyze the activities of a given enterprise, but also to compare with competing companies.

Profitability calculated over several years reflects the dynamics of performance and can form the basis for average and long-term planning... Particular attention should be paid to the profitability of fixed assets, since they occupy a fairly large share in the property of the organization and are often used ineffectively.

Video on profitability and profitability:

DEFINITION

Return on total equity is an indicator that reflects the profitability of the enterprise when it uses investments in its assets.

All investments can be formed from two sources: equity capital and borrowed capital. For this reason, there are two ratios that determine the return on total capital:

return on equity (ROE),
return on borrowed capital (ROCE).

The return on capital that is owned by the organization reflects the efficiency of investment in the functioning of the company.

The formula for the profitability of the involved (borrowed) capital reflects the effectiveness of investments in the organization's work, both its own and borrowed funds. Using this indicator, management can determine the degree of efficiency of using equity capital and attracted funds in its activities in the long term (for example, investments).

The formula for the return on total capital

The formula for the return on total capital (assets, total funds) is determined by the ratio of the balance sheet profit to the value of all assets of the enterprise. With the help of this formula, the return that falls on each ruble of assets is fixed.

The return on total capital can be modified if, instead of the balance sheet profit, the value of net profit is placed in the numerator. In this case, we get net profitability total capital:

Rsk \u003d PE / SK * 100%

Here Rsk is the rate of return on equity (%),

PE - net profit (rubles),

SK is the total cost of capital (RUB).

All profitability values \u200b\u200bare determined as a percentage.

If accounting statements are used in the calculation process, then the formula for the return on total capital will take the following form:

Rsk \u003d page 2300 / page 1600

Here line 2300 is the amount of profit before tax from the income statement,

Line 1600 is the sum of the assets of the company on the balance sheet.

The value of the return on total capital

The value of the return on total capital is influenced by the amount of profit, as well as the ratio between liabilities and own resources. This relationship can be determined through the ratio of liabilities to capital ("financial leverage" of the enterprise).

In the process of increasing obligations and increasing costs for their maintenance, the company's management, thus, reduces profits and profitability.

The formula for the return on total capital is used in the capital comparison process:

with similar indicators of other enterprises,
with interest on bank deposits and the yield on government securities.

If the return on equity is less than the interest on the deposit (bonds) for the same time period, then the investment in the project will not make sense. The optimal excess of profitability over these indicators is several times.

Examples of problem solving

EXAMPLE 1

The task

Calculate the return on total capital using the example of two periods of work.

The company has the following performance indicators in the current and last reporting period:

Profit before tax

1 - 45500 rub.,

2 - RUB 42 230,

Income tax

1 - 12 225 rubles,

2 - RUB 12,211,

Total capital amount

1 - 383 500 rubles.,

2 - 381,000 rubles.

Decision

Let's calculate the amount of net profit for these periods, subtracting income tax from the profit:

1 period of emergency \u003d 45500-12225 \u003d 33275 rubles.

2nd period of emergency \u003d 42230-12211 \u003d 30,019 rubles.

The profitability indicator can be calculated using the following formula: