Recommendations for increasing the profitability of production. What to do with products that are unprofitable in terms of margin profit. The costs per unit of output are called ... The products of the enterprise are significantly profitable if

Or companies are called upon to characterize it in four main areas 1) the liquidity of the company 2) the amount of borrowed funds it attracted 3) the turnover of its capital and 4) the profitability of the company.

This and the next chapters show how capital balance can be achieved in well-managed profitable companies. The purpose of this chapter is as follows

The main reason for the existence of leases is that companies and citizens receive different tax benefits from owning assets. In general, a profitable company may not be able to reap the full benefits of accelerated amortization, whereas highly profitable and taxed corporations and citizens may. The former can obtain most of the general tax breaks by leasing assets from the latter rather than buying them. Due to competition between landlords, some of the tax benefits may pass to the tenant in the form of lower rent payments than might have been previously.

The main attention in concluding such transactions is paid to the exchange ratio of the market prices of shares of the participating companies. When assessing the true value of a company, investors pay attention mainly to the market price of its shares. This price reflects the company's potential profitability, dividends on its securities, business risk, its capital structure, asset value, and other measurable factors. The exchange ratio of the market prices of shares is calculated as

Gender-based data allow us to conclude that the financial condition of the company has improved from 01.01.95 to 01.10.95, as evidenced by the growth of the express rating by 120%. This is primarily due to an increase in the company's profitability by 193%. During the specified period, she managed to leave the zone of unsatisfactory financial condition by increasing the share of its own working capital by 71% and the intensity of turnover by 58%.

The shareholders are primarily interested in receiving stable and increasing profits. The share of their ownership matters, as shareholders expect them to receive dividends at some point in the future. However, many fast-growing or highly profitable companies choose to reinvest their profits rather than pay dividends. Consequently, the value of shares in this case will be determined to a greater extent by the expectations of dividends in the distant future, and not by current payments. If the company does not pay dividends, but share prices rise, then the shareholder can profit by selling their shares. The responsibility entrusted to the manager is to direct the organization's activities in such a way that the shareholders receive the highest possible return.

For the company under consideration, the coefficients / C \u003d 1.9 and K2 \u003d 1.2 indicate a fairly high liquidity of working capital, the coefficients K3 \u003d 2.8 and Kt \u003d 1.6 are about moderate efficiency of using current assets, the coefficients / C6 \u003d 8.3 and Ks \u003d 1.5 - about the company's profitability. The probability of bankruptcy (Z) was more than 3.2. which, according to the generally accepted methodology, means a very low probability of this event in the near future.

In management practice, the accumulation of knowledge is basically the process of recognizing and summarizing information, systematically collecting and organizing it, providing access to it and preparing for the use of everything that can contribute to increasing the company's profitability and gaining competitive advantages in the market.

The study of the income statement includes two main areas of analysis - the receipt of funds and their spending. Companies are profitable when revenues exceed the costs associated with generating revenues. Profits are not equal to cash, due to which all debts must be paid off. However, the profitability of the company is the main factor providing the cash to repay debts and prompting the lender to provide the loan.

After examining the receipts shown in the income statement, the analyst should move on to consider the related costs incurred by the firm. Final goalis, of course, a matter of assessing the company's past profitability and making an informed proposal about its future profitability. The immediate goal is to determine the agreement of the amount of expenses.

Some companies have receipts other than sales and expenses other than those included in cost of goods sold or operating costs. After assessing the company's operating profit, the analyst needs to consider income and expenses outside the normal operations of the enterprise to determine how significantly they affect the company's overall profitability and how likely such income and expenses are in the future.

After deducting taxes on corporate income, net income after taxes remains - the bottom line of the report. Dynamics analysis net profit over a number of years allows you to assess how consistently the management pursued the policy in the past and what is the possible profitability of the company in the future. The company's profits should also be weighed against peers and industry averages. This comparison is intended to help the credit analyst see the company's performance from a certain perspective.

Is the company's profitability enough to service its debt

Is the company's profitability sufficient to service its long-term debt

During a period of sales growth, the company's profitability declined, so the company's ability to finance operations diminished.

The analysis of the cash flow statement is focused on assessing the adequacy of cash flows from core activities, the feasibility of capital investments and the structure of financial transactions related to cash. The findings can often be confirmed or refuted by benchmarking against the previous year's cash flow statement. Thus, when analyzing a growing, profitable company, many credit analysts immediately conclude that the company is flourishing (which is true in most cases). However, rapid growth, even when accompanied by profit, can lead to insolvency, since the company's need for working capital may exceed its internal financial capabilities, and the need for external financing - its ability to borrow. Although there are different kinds cash flows, referred to by different names, the advantage of the cash flow statement in the book is that it allows you to clearly identify cash inflows and outflows and group them according to origin - in other words, the company has a current operating cycle, makes decisions about long-term investments, and then finances the related operations, and each direction corresponds to cash flows.

Profitability is, in some respects, less important than cash flow, for it signifies the long-term viability of the company rather than the ability to pay off debt. The profitability of a company usually involves correlating profits with various metrics such as sales, assets and equity. Taken together, these calculations provide a good indication of the company's ability to survive and continue to raise new equity or debt.

Consider, for example, Company X and Company Y. Given the same sales volume, Company X earns $ 5,000 and Company Y earns $ 10,000 in profit. At first glance, Company Y is more profitable. Suppose, however, that Y needs $ 50,000 in assets to support its sales, and X needs only $ 15,000 for the same sales volume. Consequently, X earned more per dollar of assets involved than Company X Y. It is possible that both companies required different amounts of shareholder investment to secure this number of assets. So the analyst needs several metrics to measure a company's profitability.

The profit-to-assets ratio (ROA) characterizes the profitability of companies, i. E. how efficiently it uses its assets. Basically it is based on comparing net profit and total assets... It is often miscalculated because it does not take into account fluctuations in earnings due to different levels of interest expense. In theory, interest paid is a portion of the return on assets (after deducting cost of goods sold, operating expenses, etc.), but that portion goes to creditors, not shareholders. If interest expenses are ignored when calculating the return on assets, the presence of significant borrowed funds in itself will entail a decrease in the ratio compared to a firm with no more debt, and this veils how efficiently the management of companies disposes of assets.

In two years, the company's profitability decreased from 2.8 to 1.3% of turnover, the return on assets - from 8.7 to 6.3%, and equity capital - from 17.5 to 9.2%.

More profitable companies have more taxable profits to protect and are therefore less likely to incur the] cost of financial hardship. Therefore, the trade-off theory presupposes high leverage ratios. In reality, more profitable (profitable) companies make fewer loans.

What a customer branch should do to buy a product from outside or from another branch depends on which is more profitable in terms of corporate profit. Typically, the purchasing branch purchases the product from another branch at the maximum selling price (73), since the selling branch has unused capacity and must cover its fixed costs. How external procurement of a product affects the company's profitability is shown in the table below.

However, it is not worthwhile to unambiguously interpret the fall in the company's profitability as a harbinger of imminent bankruptcy. It is also true that the opposite growth in profitability does not always indicate the efficiency of work and favorable prospects for the enterprise. The relationship between profitability, solvency and efficiency is complex and ambiguous. Since the financial result is formed under the influence of many factors, both the external and internal environment of the enterprise, to make a serious "diagnosis" will require a complete, comprehensive analysis of not only financial statements, but also the market position of the enterprise.

So, having raised their prices, the American producers of soft drinks concentrates introduced in the 70-80s. some contribution to the elimination of the profitability of the bottling companies, which, experiencing fierce competition from the producers of powder mixtures, fruit and other drinks, could only raise prices very slightly.

However, it should be borne in mind that, firstly, the creation of a new brand requires significant investments. Second, you shouldn't create too much trade marks... Each of them, as a rule, especially if they are created for one product line, occupy only a small market niche and do not become profitable enough. The company scatters resources, thereby reducing the efficiency

The profitability of the company. In this case, profitability is understood as indicators of profitability, calculated in several varieties as the ratio of gross Pwal or net PP of profit to cost products sold Wed, or to the equity of the company Ks

The Wheatdale Group recently completed a major business restructuring process that saw the company divest itself of all non-core businesses. The company specializes in providing financial services. However, on the stock market, the company's profitability prospects are assessed as uncertain fuel on the fire, a series of critical publications in the press about labor conflicts that arose during the restructuring.

Profitable companies expanding their operations often lack cash and therefore must borrow money to pay their obligations.

The example of Merk reveals an unusual fact concerning the capital structure of most profitable companies in general make a minimum of loans27. Here, the theory of compromise does not work, since it assumes exactly the opposite according to the theory of compromise, high profits mean great opportunities for

If the price coefficient for any product is negative, the situation is extremely negative. A negative price coefficient shows that the selling price of a product does not even cover the variable costs of producing this type of product. IN a similar situation it is not possible in principle to talk about covering general production costs and making a profit. Each sale of such a product brings a loss to the company, that is, with an increase in sales volumes, LLP losses increase. For the purpose of increasing profits, it is advisable to remove such a product from production.

The decision to abandon the production of products for which the selling price does not cover variable costs is not unambiguous. There are situations in which an organization for some time can consciously sell products that are unprofitable in terms of the margin indicator. For example, this is possible when entering new markets: the organization implements a dumping policy aimed at attracting buyers and driving out competitors. Perhaps the organization is trying to preserve the established market with the expectation of further growth in purchasing power (anyone knows that in most cases it is more expensive to win the market than to support it).

In any case, the sale of products for which the selling price does not cover variable costs should be temporary. It must be remembered that the sale of each such product brings a loss to the company, which in the long term can lead to serious economic problems.

It is advisable to calculate the cost of production in the following order:

• The first step is the determination of variable costs for the production of a unit of production according to consumption rates. Variable costs should include taxes on sales proceeds included in the cost of production (if any).
• The second step is the allocation in the fixed costs of those costs that can be directly attributed to a specific type of product. Determination of unit costs by dividing their absolute value by the volume of production of a given type of product.
• 3rd step - summing up all other, not related to a specific type of product, costs for the period. Division into specific types of products in proportion to the selected base, for example, sales volumes, labor intensity of production, wages of basic production workers.

To allocate other costs that are not directly attributable to a specific product, you can also propose allocation bases. For example, the cost of repair and maintenance of equipment, depreciation of equipment can be divided by product type in proportion to the machine-hours spent on manufacturing specific types products on this equipment... Possible bases of distribution of fixed costs are presented in table 21.

Table 21. Possible bases of distribution of fixed costs

Equipment maintenance and operating costs (RSEO)
Materials	Machine-clock
Depreciation	Residual value of equipment
	Machine-clock
	Machine-clock
	Machine-clock
Water, sewage, compressed air, constant energy	Machine-clock
General shop expenses
Materials	Normo hours
Depreciation	Areas occupied in the manufacture of products
	Labor intensity of production
Salary for support staff	Labor intensity of production
	Areas (cubic capacity) of workshops
Energy of constant character	Areas (cubic capacity)
Continuation of table 21
Transport	Labor intensity of production
	Labor intensity of production

What to do with products that are unprofitable at their full cost (which is not always worth removing from production)

The prime cost of a product (work, service), which exceeds the price of its sale, suggests that, given the current price and volume of sales, the production of the product does not fully justify itself. Usually, this statement ends with “does not justify itself”, excluding the specification “completely”, which significantly changes the meaning of the phrase and the conclusions based on it. In particular, the logical conclusion seems to be the refusal to manufacture a product that does not justify the costs of its manufacture. Of course, at first, the possibility of increasing the selling price of a product or increasing its sales volumes is being considered (which will reduce the cost of the product). If there is no such possibility, the conclusion is often called obvious - the product is discontinued.

It is worth remembering that the cost of a product (work, service) combines not only the costs directly related to its production, but also the costs of other workshops, plant management, auxiliary productionthat do not have a direct connection with the analyzed item. Refusal to manufacture a product that is unprofitable at full cost will lead to a reduction in only those costs that are directly related to its manufacture. Other costs that were "present" in the cost price, but were not directly related to its production, may remain unchanged. For example, the costs included in the cost price for the maintenance of equipment, workshop buildings and plant management, wage managers (components of general shop and general plant costs) may not undergo any changes due to the refusal to manufacture any product.

Thus, profit optimization due to the refusal from the production of unprofitable product is possible if all costs included in the cost of this product are reduced. Such a case (reduction of all costs included in the cost of production) is an exception than the rule. In the overwhelming majority of cases, the refusal to produce a unprofitable product will lead to a reduction in only part of the company's expenses. The decision to withdraw a product that is unprofitable at its full cost will be effective (that is, will lead to an increase in the company's profit) in the case (Fig. 6) if the condition is met:

Revenue from the sale of product i< (Переменные затраты на производство продукта i + Прямые постоянные затраты, связанные с производством продукта i).

If the revenue received from the sale of a product that is unprofitable at its full cost exceeds the direct costs of its production, then such a product makes a certain contribution to covering other costs that are not directly related to the production of this product, that is, it brings income to the enterprise. If, at the same time, there is a loss at full cost, then we can say: the contribution made by the product to cover all costs is insufficient (i.e., the price or volume of sales of the product is insufficient to cover the full costs of its production), but the contribution is still there. With a product for which the above situation is observed, you can do, in particular, as follows.

Figure 6. A principled approach to making a decision to discontinue a product

An obvious, but not always easily implemented solution: an increase in the price and (or) the volume of product sales.

If, in general, the organization's sales are profitable (total sales revenue covers the total cost of production), it is possible to leave everything as it is today. In this case, you will have to keep in mind that the range of manufactured products contains products that bring less income than would be desirable.

Replace the production of the item in question with a new product that meets the condition [Revenue of a new product - (Variable costs + Direct fixed costs of manufacturing a new product)]\u003e [Revenue of a product in question - (Variable costs + Direct fixed costs of manufacturing a product in question)]. Simply abandoning the production of the product in question, unfortunately, will deprive the company of, albeit a small, but still contribution to covering general overhead costs and thereby reduce the profit received.

The condition specified in formula (30) is valid not only for making a decision on the discontinuation of certain types of products, but also for solving a similar problem for structural units enterprise, holding.

Return on total capital \u003d [(net profit (for the period) + interest 2 * (1 - NP rate)) / Balance currency (total liabilities)],% (30)

where Interest 2 is the amount of interest accrued in the analyzed period on loans that reduce taxable profit, e; Interest 1 - interest accrued in the analyzed period on loans that do not reduce taxable profit, f.e .; NP rate - profit tax rate,%; The balance sheet currency is determined as the average value of the total amount of liabilities in the period under review, i.e. (Total liabilities at the beginning of the period + Total liabilities at the end of the period) / 2.

Assessment of profitability when organizing the production of a new product at an existing enterprise

The condition specified in formula (30) is valid not only when making a decision to discontinue production of certain types of products or to abandon a number of structural units. This condition can also be guided by when assessing the feasibility of accepting (selling) new types of products or organizing new structural divisions. In this case, the assessment of the profitability of products based on the total cost price is not always objective.

The purpose of organizing the production of a new product (work, services) is to obtain additional profit. The concept of "complementary" implies the difference between future and present values. Calculation of the total cost of a new product will not allow you to correctly determine the additional profit from the sale of a new product, since it will combine both existing costs and those that have arisen in connection with the implementation of the project.

If the additional profit brought by the new product is positive, the organization of the production of the new product can be called expedient. Note that the criterion for the feasibility of the project will also be the payback period capital investmentsassociated with the organization of production of a new product - the cost of purchasing and installing equipment, building new workshops.

The additional profit brought by the new product will help to determine the incremental method (Table 22).

Table 22. Determination of additional profit brought by a new product

	The essence of the step	Calculation method
	Determination of additional proceeds from sales new products	Defined as the product of sales volumes and the price of new products
	Determination of variable costs for the production of a new product	Determined on the basis of the consumption rates of raw materials, materials, components, fuel, energy, variable wages for a new product
	Determination of additional fixed costs incurred at the enterprise in connection with the implementation of the project. Consideration of increments for all elements (cost items)	The changes in costs associated with the organization of the production of a new product along the entire technological chain are determined. Absolute increments in costs are taken into account, but not determined using cost
Including:
* additional costs for equipment repair and maintenance	The following are taken into account: - costs of repair and maintenance of new equipment (purchased in connection with the implementation of the project); Additional costs for the repair and maintenance of existing equipment that will be involved in the production of a new product (if any additional costs arise)
* additional labor costs (permanent)	Taken into account: - salary of personnel additionally attracted in connection with the implementation of the project (number of additional personnel involved * salary per person); - additional wages of the existing management personnel of the enterprise arising in connection with the implementation of the project (if such additional wages arise)

Costs are the costs of producing and selling products in cash.

Costs are external (explicit, accounting) and internal (implicit, imputed). TO external costs includes the cost of the expended resources, estimated at the current prices of their purchase.

Internal costs are:

1) the cost of resources belonging to the entrepreneur himself;

2) normal profit, which is accounted for by such a resource as entrepreneurial ability.

External and internal costs add up to economic, or alternative, costs.They are equal to the amount of income that can be obtained from the most profitable of all alternative uses of resources.

Total income ( TR ) Is the amount of income received by the company from the sale of a certain amount of goods:

where P is the price;

Q is the amount of goods sold.

Average income ( AR ) - income per unit of goods sold. In perfect competition, the average income is equal to the market price:

Marginal income ( MR ) - an increase in income, which arises from an infinitely small increase in output:

In conditions of perfect competition, when there are many manufacturers, none of them can have a significant impact on the price of products. The price is formed objectively, so each firm acts as a price receiver.

IN general view profit is defined as the difference between total revenue (total income) and total costs:

where TR is the total revenue;

TC is the total cost;

PF is profit.

Accounting profit (APF) \u003d Total Revenue - External Cost.

Economic profit (EPF) \u003d Accounting profit - Internal costs.

The accounting profit will be greater than the economic profit by the amount of implicit costs.

Normal profit appears when TR \u003d TC, calculated as the cost of lost opportunities for all resources used. Normal profit (NPF) is determined by the equality of accounting profit and implicit costs. A firm that makes a normal profit is considered to be breakeven.

Normal profit - the minimum income at which an entrepreneur will remain in this area of \u200b\u200bproduction.

Normal profit is considered in two aspects:

1) return on invested capital. It is determined by objective factors (interest rate on deposits);

2) the cost of entrepreneurial talent and risk. It is determined by subjective factors (how entrepreneurs assess themselves) and the minimum level of profit that most entrepreneurs in this business area receive.

If TR\u003e TC, then the firm receives a positive economic profit (excess profit). The presence of economic profit means that resources are used in a given enterprise more efficiently than elsewhere. Exactly economic profit serves as a criterion for the effective use of available resources. Its presence or absence is an incentive to attract additional resources or switch them to other areas of use. An activity is economically justified if it brings economic profit.

Every firm is interested in maximizing profits. This can be achieved by:

1) increase in output (if the company is financially stable);

2) price increases (if the firm has monopoly power;

3) cost reduction.

Short term - This is a period of time during which some factors of production are constant, while others are variable.

Constant factors include fixed assets, the number of firms operating in the industry. In this period, the firm has the ability to vary only the degree of utilization of production facilities.

Long term Is the length of time during which all factors are variable. In the long run, a firm has the ability to change the overall dimensions of buildings, structures, the amount of equipment, and the industry - the number of firms operating in it.

All costs of the firm are divided into two groups depending on their reaction to changes in output - constant (conditionally constant) and variable (conditionally variable).

Fixed costs (FC) - These are costs, the value of which in the short run does not change with an increase or decrease in production.

Fixed costs include costs associated with the use of buildings and structures, machinery and production equipment, rent, overhaulas well as administrative expenses.

Because as the volume of production increases, the total revenue grows, then the average fixed costs (AFC) represent a decreasing value.

Variable costs (VC) - these are costs, the value of which changes depending on the increase or decrease in the volume of production.

Variable costs include the cost of raw materials, electricity, auxiliary materials, wages and social contributions.

Average Variable Costs (AVC) are:

Total costs (TC) - a set of constant and variable costs firms.

Total costs are a function of the output:

TC \u003d f (Q), TC \u003d FC + VC.

Graphically, total costs are obtained by summing the constant and variable cost curves (Figure 6.3).

Average total costs are: ATC \u003d TC / Q or AFC + AVC \u003d (FC + VC) / Q.

ATS can be graphically obtained by summing the AFC and AVC curves.

Figure 6.3. Variable, fixed and total cost curve

Marginal cost (MC) Is an increment in total costs caused by an infinitely small increase in production. Marginal cost is usually understood as the cost associated with producing an additional unit of output.

Graphs of functions of average, average variables and marginal costs are shown in Figure 6.4.

With an increase in production, AVCs first decrease, reaching a minimum, and then increase due to the law of diminishing returns.

Figure: 6.4 Average and marginal cost functions

Various cost characteristics are related to each other, which means that the graphs of functions are located in a certain relationship with respect to each other:

1) The marginal cost curve intersects the average curve at the point where the average cost takes the smallest value;

2) If MC< AC, средние издержки убывают; а если MC>AC, then average costs rise;

3) The marginal cost curve intersects the average variable cost curve at the point where the average variable cost takes the smallest value;

4) If MC< AVC, средние издержки убывают; а если MC>AVC, then the average variable costs rise.

The relationship between the production function and cost functions (labor is the only variable resource):

AVC \u003d VC / Q \u003d wL / Q \u003d w / AP L

MS \u003d ΔVC / ΔQ \u003d wΔL / ΔQ \u003d w / MP L,

where w is the wage rate;

AP L is the average product of labor;

MP L is the marginal product of labor.

If the marginal product of labor decreases, then the marginal cost increases, and vice versa. If the average product of labor decreases, then the average variable costs increase, and vice versa. Thus, there is an inverse relationship between MR and MS, AR and AC.

This is a test for adherents of strategic thinking, because it is obvious that success is important here, not only in the long term, but also in the short term. This work especially emphasizes the fact that one should not focus
focus on a long-term strategy at the expense of real and urgent current affairs of strategic importance.
An important way to increase the company's profit is the recovery of unprofitable activities. Surprisingly many large corporations have unprofitable subsidiaries at the moment. The many failing private companies are another example of the problem of losing businesses. One of the reactions to it is the desire
to sell a losing business, which is actually an attempt to get out of a situation that gives rise not only to problems, but also opportunities. Even if a buyer is found, the selling price is likely to be below net worth. If a losing company is sold to its current managers, then some interesting questions arise. What will they do differently than before? Why hasn't this been done before at the direction of the parent company? Opportunities are to rehabilitate the company before considering selling it, because even if the sale makes sense, it will be much easier to do after remediation and the selling price will be much higher.

1. The first steps

It should be understood that recovery of a loss-making company is hardly possible without the appointment of a new leader. However, some holding companies have suffered losses from subsidiaries for years before appointing a new manager charged with business recovery. This delay is very costly. Strategic plans that actually offer “more of the same” and do not contain drastic measures should be rejected.
Almost certainly the most important first step will be the appointment of a new CEO with the authority to take whatever action is needed to eliminate losses and organize profitable operations as soon as possible.
If there is a cash flow crisis threatening the very existence of the company, then solving this problem should be the top priority. Urgent measures may be required such as:

• meeting with the bank and agreement with creditors to avoid the introduction of interim management;
• negotiating with major trade creditors to defer late payments to the extent possible, with assurances that effective remedial action will be taken without delay;
• concentration of efforts on the return of overdue receivables;
• adopting a policy of selectively paying creditors for at least a portion of the debt to ensure the continuity of critical supplies and services and to avoid highly unwanted legal action as much as possible.

After that, the new CEO has every reason to demonstrate his authority. The severity of the situation should be reflected in the company's performance through measures such as:

• termination labor agreements with all temporary workers until further notice

• if it hurts the matter, then someone will certainly shout about it loudly;

• personal approval of all overseas business trips

• the purpose of the trip should justify the costs and the proposed itinerary of the visit should, if possible, be critically reviewed before being submitted for approval;

• suspension of non-essential expenses until further notice

• for example, a contract for the renovation of premises, renovation of company vehicles, etc .;

• transfer for a certain time of all secondary capital costs;
• hiring, including replacing retired employees, only with the permission of the CEO;
• refusal of any wasteful activities of an unofficial nature and external excesses.

Compared to the severity of the situation, the impact of these measures can be quite modest. However, their purpose is to show that the road is being cleared for tougher measures, if any.

1. Identification of reasons for loss

The next step is to establish the reasons for the losses. The CEO needs to speak to each member of the Board and other managers. Surprisingly often, the root causes of losses quickly become apparent to the new person in the company. For instance:

• overhead costs are excessive in relation to sales;
• the cost of products or services is too high compared to the market price;
• excess production capacity in this sub-sector;
• marketing and sales activities are ineffective and too costly;
• the characteristics of the product and its use value have lost their competitiveness;
• poor quality and reliability of products undermined sales;
• the need to use expensive subcontractors to compensate for the company's internal shortcomings.

An urgent the financial analysis in order to confirm the main reasons for unprofitable work. In particular, it is necessary to assess:

• the rate of marginal profit for each type of goods or services;
• profitability for major customers;
• business payback point based on the existing level of overhead costs;
• the maximum allowable level of fixed overhead costs at which a break-even operation is possible at the current volume of sales and prices.

Time does not allow for a complete financial analysis. You need to quickly get fairly accurate information.
The new CEO should avoid getting caught up in day-to-day problems. The top priority should be an impartial and detailed study of the state of affairs in the company. A good starting point is talking to your sales representative. Visiting clients and potential buyers with them is often very rewarding. The company's weaknesses become particularly evident here. Pop up quickly
problems such as unsatisfactory specifications goods, uncompetitive prices, unacceptable quality and reliability, long delivery times and ineffective marketing activities.
Traveling with sales representatives also exposes deficiencies in the work of the support departments. Therefore, it makes sense to study the work of sales support services as the next step. Only then can you move on to marketing.
It is necessary to evaluate the contribution marketing activities into the work of the company. The level of spending should be critically reviewed. Marketing effectiveness can easily be confused with the activity of the relevant department. In one real case Marketing staff was cut from 17 to 8. Subsequently, everyone in the company said that despite fewer employees, the marketing department's contribution increased significantly due to its more focused work.
The next object of close scrutiny should be the production and delivery of goods or services to customers. Here are some questions to be answered:

• What are the possibilities of applying financial engineering methods to produced goods or services?
• How quickly are orders fulfilled and what is the reliability of delivery obligations?
• What are the business losses due to delayed or incomplete deliveries?
• What are the bottlenecks and how to overcome them?
• What needs to be done to improve the quality and reliability of products or services?
• What can be done to significantly reduce costs?
• What are the options to choose between own production and buying on the side should be appreciated?
• What additional costs would ensure fast, good financial results?

The role and contribution of the administration must be critically assessed. The minimum possible number of its personnel should be determined. Whenever possible, operating industries should provide themselves with all the necessary administrative services and act as autonomous units.
An attack on administrative costs should be undertaken. We need satisfactory answers to questions like:

• What happens if you don't do this job?
• Why is this done so often?
• Why is it done in such an expensive way?
• If it's really necessary, how can you do it with less cost?

Research and development can be a difficult area. New cEO may not have technical knowledge at the level of leading designers. However, this does not necessarily put him at a disadvantage.
Questions that cut a road through technical difficulties and that need to be answered:

• What is the level of research and development spending compared to leading competitors?

• What percentage of all research and development spending is spent on:

• basic research?
• new product development?
• improvement of manufactured products?

• What percentage of current sales are new products or services introduced over the past five years?
• What percentage of sales of new products and services is provided by:

• own research and development?
• license and distribution agreements?
• cooperation in the form of joint ventures?

• How is the commercial and financial appraisal research projects before starting work on them?
• Is there effective communication between R&D, marketing and manufacturing professionals?
• Are the project management and cost control methods used effectively?
• What projects proved to be costly mistakes, and what lessons were learned?
• What new projects should be approved or evaluated to meet market needs?

After that, you need to determine the scale of business rationalization, staff reduction and overhead costs, allowing you to quickly break even. A sharp reduction in the range of goods and services produced may be required. In that
relation will be useful a list of goods and services, compiled in descending order of marginal or gross profit brought by each of them. In one real example, out of nearly 500 product items, 6 provided more than 80 percent of the company's marginal profit. The range of manufactured goods was significantly reduced without any significant dissatisfaction from the buyers.
People will understand without words that layoffs are inevitable. The sooner the cuts are announced, the sooner the uncertainty will end. The most talented employees who find it easier to find other jobs are likely to start leaving earlier than others - this is another reason for the need to act quickly.
First of all, it is necessary to determine the number of downsized personnel, ensuring the preservation of the company's efficiency and the acceptable level of overhead costs. Any proposals for a proportional reduction in the number of units should be rejected. The general director must agree with the head of each department on the number of employees to be laid off. Disproportionately large reductions may be required in headquarters and administrative services. However, it may be necessary to hire several people to work in critical areas, such as direct sales personnel or installation engineers.
Each manager must submit a list of staff to be cut. The CEO needs to check each list to ensure that the selection is fair. This should be done in the presence of a manager with understanding, generosity, and empathy.

consequence. If necessary, the union should be notified. If possible, people should be helped to find another job. There is no perfect time to announce a layoff, but it makes sense to do so on a Friday afternoon. Thus, only those who remain on the staff of the company will go to work next Monday. Cannot be allowed dissatisfied peoplewho have just been laid off stay in their jobs.
It is important that all reductions are announced at the same time. Either way, morale will be undermined, but it will suffer much more if people are left wondering when the next cut will be. The sooner a company starts recruiting people again, the better for morale.
By this time, the CEO will already have an idea of \u200b\u200bthe new level of fixed costs and the rate of marginal profit. Therefore, it is easy to calculate the annual sales that will allow the company to break even. It should be presented in the form of monthly sales that provide a return on costs, and a collective goal should be set for the management corps: the first month when this volume of sales is exceeded and, thus, losses will be eliminated.
The next step should be the revision and approval by the company's Board of directors of tense sales and earnings forecasts by the end of this year. This opportunity should be seized to improve the quality of the monthly operational information that provides managers with the information they need to effectively manage their business.
A tight budget needs to be developed for the next financial year. People should understand that liquidation of losses is not enough yet; this is just the first and relatively simple step towards financial recovery. The goal should be to achieve an acceptable level of return on the operating assets involved as quickly as possible.
An important part of the budget during the recovery period should be projects that increase the company's profits, and each of them should:

• be designed for rapid profit growth;
• be supervised by a member of the Management Board who is responsible for timely and successful implementation.

After the initial surgical intervention the projects for increasing profit have been completed and deployed, the time has come to seriously engage in business development, to resolve fundamental issues. Should the CEO appointed to rehabilitate the company continue what he started? Or is it better to replace it with someone else, someone who is better suited to the task of business development? Asking such a question may seem unexpected. However, it may well be that the wellness specialist is not ideally suited to address the medium-term challenges.
Evidence suggests that surgery and short-term profit-raising measures can eliminate losses, but major new endeavors are required to achieve acceptable financial performance.

No replacement:

• developing a “vision for the future”;
• using the “big leap” method;

identifying and evaluating strategic options;
creating organizational structure; implementation of business development projects.

An integral part of the economic costs is " normal profit"- income from the use of entrepreneurial talent. Normal profit appears when the total income of the company is equal to the total economic costs. In these conditions the economic profit of the firm is zero... Normal profit is necessary in order to keep an entrepreneur in this area of \u200b\u200bactivity.

Net economic profit

If a firm uses its available resources the most effective way and total income exceeds total, then there is a positive economic profit. Depending on the market structure and the ratio of the elements of monopoly and competition in a particular market, economic profit can persist for a more or less long period.

The presence of positive or negative economic profit in the industry stimulates the inflow of new enterprises into the industry or a corresponding outflow of firms to other areas of activity.

Profit calculation example:

3. Accounting profit (1 - 2) \u003d 1000 - 800 \u003d 200

4. Economic profit (1 - 2 - 3) \u003d 1000 - 800 - 250 \u003d -50

Conclusion: with a positive accounting profit, the economic profit turned out to be negative, i.e. the entrepreneur needs to analyze the possibility of alternative use of his funds.

Analysis of profit from core activities

Profits and losses represent financial results economic activity enterprises.

The main objectives of profit analysis are:

• verification of the validity of the planned profit. The profit plan should be linked to the volume of products sold and their cost;
• assessment of the implementation of the business plan for profit;
• calculating the influence of individual factors on the deviation of the actual amount of profit from the planned;
• identification of reserves for further growth of profits and ways to mobilize (use) these reserves.

The most important sources of information for profit analysis are:

• (F. No. 1 reporting),
• (F. No. 2 reporting),
• accounting register - journal-order No. 15 for accounting for profit and its use,
• organizations.

The profit of an organization consists of three main elements:

• profit (or loss) from the sale of products, works and services;
• profit (or loss) from other sales;
• operating, non-operating and extraordinary income and expenses. The main part of the received profit is profit from the sale of products, works, services.

In F. No. 2 of the financial statements "Profit and Loss Statement" the following types of profit are given:

• gross profit. It is defined as the difference between the proceeds from sales and the cost of goods sold;
• revenue from sales. It is calculated as the difference between revenue, cost, selling and administrative expenses;
• profit before tax is calculated taking into account the availability of operating and non-operating income and expenses;
• net income is determined by deducting deferred tax assets and current income tax from profit before tax and deferred tax liabilities.

Let's analyze the profit received from the main activity of the enterprise, i.e. profit from the sale of products (works, services).

Profit from product sales - this is the financial result obtained from the main activity of the enterprise, which can be carried out in any form fixed in its charter and not prohibited by law. The financial result is determined separately for each type of activity of the enterprise related to the sale of products, performance of work, provision of services. It is equal to the difference between the proceeds from the sale of products in current prices and the costs of their production and sale.

Pr \u003d Bp - C / s,

• Bp - sales proceeds;
• С / с - (costs of production and sale).

Revenue is taken into account without value added tax and excise taxes, which, being indirect taxes, go to the budget. The amount of mark-ups (discounts) received by trade and supply-and-sales enterprises involved in the sale of products is also excluded from the proceeds.

Enterprises engaged in export activities, when calculating profits, also exclude export tariffs allocated to the state revenue.

Revenue from sales of products is determined either as:

• its payment (for non-cash payments - to the bank accounts; in case of cash - at the cash desk of the enterprise);
• upon shipment and presentation of settlement documents by the buyer.

In kind, the calculation of profit from the sale of products includes balances finished products at the beginning of the reporting period (He.), not sold in the previous period, and the release of marketable products of the reporting period (TP) minus that part of the product that cannot be sold at the end of the reporting period (Ok.).

Etc. \u003d He. + TP - Ok.

A period is a quarter or a year.

The composition of the balances of unsold products at the beginning and end of the period depends on: the method of revenue accounting chosen by the enterprise - upon receipt of money on the settlement account (in the cashier's office) of the enterprise or on the shipment of products, the settlement documents for which are presented to the buyer.

Table No. 8 (in thousand rubles)

Indicators		According to the plan for actually sold products	Actually
1. Production cost of goods sold
2. Selling expenses related to products sold (selling expenses)
3. Total total cost of goods sold
4. Proceeds from sales in sales prices excluding VAT and excise taxes)
5. Financial result - profit (p. 4 - p. 3)

So, the profit from the sale of commercial products increased in comparison with the plan by the amount: 3376 - 3174 \u003d + 202 thousand rubles This overfulfillment was influenced by the following factors:

1. increase against the plan of the volume of products sold. In the analyzed enterprise, the plan for the volume of sales (sales) of products was fulfilled by 101.6%. Multiplying the planned profit from sales by the percentage of overfulfillment of the plan in terms of sales volume, we find the amount of profit received due to the growth in sales of products: (3174 * 1.6%) / 100% \u003d + 50.8 thousand rubles. Therefore, due to the increase in the volume of products sold, the profit received from the sale increased by 50.8 thousand rubles;

2. an increase against the plan of the production cost of goods sold reduced profit.

let's compare the actual and planned cost of actually sold products, i.e. compare the fourth column of the table with the third column on the first line: 19552 - 19491 \u003d - 61 thousand rubles. This result means that due to the increase in the production cost of goods sold, the profit decreased by 61 thousand rubles;

3. commercial (administrative) costs, as well as production costs, have the opposite effect on profit. However, in this example, their value did not change and did not affect the profit. To establish this, compare the actual and planned values business expensesattributable to the actual volume of product sales, i.e. compare the fourth column of the table with the third column on the second line: 144 - 144 \u003d 0

4. The effect of changes in wholesale prices on profit from product sales is established by comparing actually sold products at current wholesale prices (excluding VAT and excise taxes) and actually sold products at planned prices (excluding VAT and excise taxes).

For this purpose, let us compare the fourth column of the table with the third column on the fourth line: 23072 - 23087 \u003d - 15 thousand rubles. This result means that wholesale prices for products sold decreased by 15 thousand rubles, which reduced profit by the same amount;

5. The effect of changes in the structure of sold products on profit is calculated in a balance way, i.e. as the difference between the sum of the deviation of the actual profit from the implementation from the plan and the sums of the influence of all other (already known) factors: 202 - (50.8 - 61 + 0 - 15) \u003d + 227.2 thousand rubles. This result means that the shift in the structure (change in the structure) of sold products towards an increase in the share of more profitable types of products increased the profit from sales by 227.2 thousand rubles.

The overall influence of all factors (balance of factors) is: + 50.8 - 61 +0 - 15 - + 227.2 \u003d + 202 thousand rubles.

In this way, excess profit from product sales was obtained mainly due to a shift in the structure of products sold towards an increase in the share of more profitable types of products, as well as due to an increase in product sales. At the same time, an increase in the production cost of goods sold and a decrease in wholesale prices for products reduced profit. The amount of selling expenses did not change and did not affect the profit.

Analysis of the "quality" of profit is also important. Profit quality is a generalized characteristic of the structure of sources of profit formation. With high "quality" profits the volume of manufactured products increases, its cost decreases. With low "quality" of profit there is an increase in sales prices for products in combination with the absence of an increase in the volume of products in physical terms.

The main thing in improving the "quality" of profits is the decline. This is an intensive direction of increasing profits by mobilizing available reserves.

Marginal income

When analyzing the profit from the sale of commercial products, one should determine such an indicator as marginal income. Marginal income represents the difference between the proceeds from the sale of products and the variable costs of its production and sale. In other words, profit margin is the sum of fixed costs and sales profit.

Based on this, the profit from the sale of commercial products is equal to the marginal income minus fixed costs. It follows that the company will make a profit only if the fixed costs are reimbursed through the proceeds from the sale of a certain volume of manufactured products. This revenue should be sufficient to recover variable costs and generate profits. The analysis here allows you to establish at the expense of which costs (constant or variable) included in the cost of goods sold, profit changes.

Operating Leverage Effect

It is also necessary to consider such an indicator as operating leverage effect (production leverage)... It is characterized by the ratio of marginal income and profit. The effect of operating leverage shows how much profit increases due to changes in revenue from sales of products. The fact is that the effect of an increase in sales proceeds on the amount of profit depends on the ratio of variable and fixed costs. Therefore, the size of the operating leverage depends on this ratio. The higher the proportion of fixed costs, the greater the difference between marginal income and profit, and the higher the ratio between them. With the help of operating leverage, you can assess the impact of revenue from sales of products on profit. The greater the value of the operating leverage, the more significant increase in profit is provided by each percentage of the increase in revenue from product sales.

An important aspect of profit analysis is determination of break-even (critical) volume of production and sales of products. A break-even volume of production takes place if equals (or if the marginal income is equal to the sum of variable costs in the cost of production). In this case, the organization receives neither profit nor loss from the sale of products. This situation is called the critical (break-even) volume of production and sales of products, or otherwise, the critical point (break-even point), as well as threshold.

The critical volume of production can be defined as the quotient of dividing by the amount of marginal income. Therefore, the profitability threshold can be determined by the following formula:

(sum of variable costs / sum of marginal income) * 100%.

To reach a critical point, it is necessary to produce and sell so many products that both the variables and the given organization are covered by the proceeds from the sale. In order to make a profit, you need to increase your sales. If the value of production decreases, then the organization will suffer a loss.

All the factors listed in this paragraph that affect the amount of profit received should be attributed to the number internal factors ... Besides them, there are external factors, also determining the amount of profit received by the organization.

External factors include:

• socio-economic conditions in which this organization operates;
• the degree of development of foreign economic relations;
• transport conditions;
• the level of prices for production resources, etc.

Analysis of profit from the sale of assets, operating, non-operating and extraordinary income and expenses

Reserves for increasing profits and increasing the level of profitability

Enterprises can receive financial results (profits or losses) not related to the sale of products, works and services. This includes, in particular, gains and losses from so-called other sales, i.e. from the sale of property (assets) of the enterprise. For example, there may be a sale of (funds), materials, and other types of enterprise assets.

When analyzing the financial results from other sales, it is necessary to check the reliability of the assessment of the assets being sold, and also to compare the possible income from the sale of assets with the estimated costs of these operations. Then, already in the process of subsequent analysis, the actual financial result from other sales should be compared with the expected result.

When selling fixed assets, it is necessary to compare the possible profit from their sale with those incomes that can be received by the enterprise provided the continued operation of these fixed assets. If the profit from the sale of an object of fixed assets exceeds the amount of possible profit from the continuation of the operation of this object within a certain standard period, then the sale of this object of fixed assets should be carried out.

In addition to profits and losses from other sales (from the sale of assets), organizations may also have non-operating financial results that are not related to either the sale of products or the sale of assets (property).

Non-operating financial results are divided into three types:

• operating income and expenses;
• non-operating income and expenses;
• extraordinary income and expenses.

Operating income and expenses include:

• interest receivable;
• percentage to be paid;
• income from participation in other organizations;
• other operating income and expenses.

Non-operating income and expenses include: See further: Extraordinary income includes:

• insurance claims;
• the cost of tangible assets remaining from the write-off of assets that are unusable for restoration and further use, i.e. fixed assets.

Extraordinary expenses arise as the consequences of extraordinary circumstances of the economic activity of the enterprise (floods, fires, accidents, or nationalization of property, etc.)

Operating, non-operating and extraordinary financial results, as a rule, are not planned... Therefore, the main technique for their analysis is to compare their actual value for reporting period with the amounts for previous reporting periods, i.e. study of the dynamics of these quantities. When analyzing for each type (item) of these incomes (profits) and expenses (losses), it is necessary to find out the reasons for their occurrence, to establish whether measures were taken in a timely manner to repay the debt, to identify the persons guilty of missing the statute of limitations, etc.

The analysis of non-operating financial results makes it possible to assess the organization of the functioning of marketing and financial services, as well as the degree of compliance with contractual discipline.

At the end of the analysis, specific measures should be developed to reduce or even completely prevent losses from non-operating transactions.

The analysis of the formation of profit should be completed with a summary calculation of the reserves for increasing profit, identified as a result of the analysis.

The main reserve for profit growth is a reduction in the cost of manufactured and sold products.

The process of formation and distribution of enterprise profits

Profit use analysis

The amount of profit remaining at the disposal of the enterprise (net profit) is influenced primarily by the amount of taxable profit, as well as the income tax rate.

If taxable profit changes, then the amount of net profit changes in the opposite direction. So, with an increase in the amount of taxable profit, the amount of profit remaining at the disposal of the enterprise will decrease.

In the case of income taxed at rates different from the income tax rate, this income is deducted from gross profit in determining the amount of taxable income. The considered types of income, with the exception of taxes, increase the amount of profit remaining at the disposal of the enterprise.

The amount of deductions from profit in has the opposite effect on the amount of net profit: with an increase in these deductions, the profit remaining at the disposal of the enterprise decreases, and with a decrease in these deductions, the net profit increases.

When analyzing the use of profit, it is necessary to compare its actual distribution for the reporting period with the distribution provided for in the financial plan of the enterprise, as well as with the corresponding data for previous periods, that is, in dynamics. Based on the analysis of the use of profit, conclusions can be drawn about the need for changes in its use in order to achieve optimal ratios between the individual directions of its distribution.

The constituent documents of each organization determine the procedure for using the net profit remaining after the payment of taxes to the budget, as well as the list of funds formed from this profit.

In the process of analyzing the use of profit, the following main tasks should be solved:

• to establish how the amounts and shares of specific areas of profit use have changed in comparison with financial plan and the values \u200b\u200bof the previous period;
• analyze the formation and use of reserve capital and other special funds;
• to assess the effectiveness of the use of profit;
• to identify ways to optimize the use of profits and the main activities aimed at improving the use of profits.

In the process of formation and use of funds special purpose at the expense of the profit remaining at the disposal of the organization, the stimulating role of profit is carried out.

When analyzing special funds, the following issues should be considered:

• change in the amount of funds allocated to special funds;
• the influence of individual factors on a given amount;
• the procedure for using funds from special funds for the relevant purposes;
• how the amounts of deductions from net profit to special funds and the amount of use of the funds of these funds change in dynamics, i.e. over time;
• what are the reserves for optimizing the size of special funds and their use.

When analyzing the formation of special purpose funds at the expense of net profit, you should use a formula that allows you to determine the degree of change in contributions to special funds due to a change in net profit:

∆СФ \u003d ∆ЧП · К,

• ∆СФ - the increment in the size of special funds, i.e. accumulation or consumption fund by changing the amount of profit remaining at the disposal of the enterprise;
• ∆CHP - an increment in the amount of profit remaining at the disposal of the enterprise;
• TO - the coefficient of deductions from net profit to this fund (base value).

The amounts of deductions to special purpose funds are also influenced by changes in the value of the ratio of deductions from net profit. The influence of this factor can be determined by the following formula:

∆СФ \u003d (К 1 - К 0) CP 1,

• ∆СФ - an increase in the size of special purpose funds due to a change in the rate of deductions from net profit;
• K 1, K 0 - respectively, the actual and basic coefficients of deductions from net profit to special purpose funds;
• PE 1 - net profit this enterprise during the reporting period.

An increase in the amount of profit remaining at the disposal of the enterprise accordingly increases the amount of contributions to special funds, and a decrease in net profit reduces the amount of these contributions. Similarly, i.e. The change in the ratio of deductions from net profit also directly affects: with an increase in this ratio, the amount of deductions to special purpose funds increases, and with a decrease in the value of the ratio, the amount of deductions to special funds decreases.

In the process of analyzing the use of special funds, it is necessary to compare the actual expenditures of funds with the foreseen plan and expenditures of previous reporting periods. Thus, the means of accumulation funds are directed, as a rule, for the development of production, i.e. to increase (funds), as well as to fill current assets. It is advisable to analyze how the use of the accumulation fund's assets affected the structure of the enterprise's property, as well as technical condition fixed assets (funds).

Consumption funds are used to make various payments of a social nature. It is advisable to analyze the use of these funds in conjunction with such indicators of the state and use labor resources, as the coefficients of turnover for admission and dismissal, full turnover, turnover, indicators of the average wage category, labor productivity. The use of profit for the formation and spending of consumption funds is justified if it is interconnected with the improvement of the listed labor indicators.

Giving a general assessment of the use of the organization's profits, it is necessary to state how it contributes to an increase in the scale of the organization's activities, the growth of its economic potential, replenishment of equity capital, as well as optimization of the structure of the organization's assets and liabilities.