For the fruitful functioning of every serious institution, it is important not only to make a competent business plan in advance, but to calculate profit and profitability. What are the differences between these two terms, and what should be the management of profit and profitability suggest to find out.
What is profit and profitability?
Under the profit it is accepted to understand the value that reflects the efficiency of the structure and is a source of financing for both social and production costs. Profitability is the ratio that is calculated as the ratio of the received to the cost of sales and manufacturing. The concept of profit and profitability is important for every company.
| Profit (simple calculation formula) | Profitability (simple calculation formula) |
Пч = ДВ-Р Pw - net profit DV - incomes, proceeds from services, works or products P - all expenses | Ra = P / A Ra - return on assets P - profit for a certain period A - the average value of assets for a certain period |
Profit and profitability of the enterprise
Management monitors the profit and profitability of the enterprise, which is associated with the level of performance and is expressed in terms of material equivalents. Data can reveal a complete picture of the functioning of the structure. In other words, profit is the amount of material assets that we managed to master after realizing our own services and products for a specific time.
Dependence of profit on profitability
Such two concepts as profit and profitability are interrelated and capable of having an equally important impact on performance. However, they have certain differences, which consist in the fact that the former is an absolute value, and the profitability index is relative. The first directly depends on the second. With incorrect calculations, even a solid institution may end up in loss.
Types of profit and profitability
For the functioning to be fruitful, it is important to plan everything beforehand and highlight the essential. At the same time, you need to know what kinds of profit and profitability the enterprise has. Among the most famous categories of the first:
- Operating - the result of production and marketing, or the main for this company work.
- Marginal.
- Clean.
- Capitalized.
- Consumed - the one that is provided for the payment of dividends to all shareholders and founders.
- Taxable - the one that should be taxed.
- Not taxable - such that tax is not provided for.
- Nominal and real.
- Adjusted for the inflation rate.
- Profit planned, reporting, previous year.
Profitability is divided into:
- Profitability of products - the value is calculated as a ratio of what it was possible to take from the sale to the full cost price.
- Profitability of production is used for the purpose of analyzing certain types of business or projects by investors and owners
- Return on assets - the goal is the effectiveness of the use of assets at every stage of the business.
Profitability and profit - difference
Before starting a business plan, you need to thoroughly study economic concepts and find out what they differ from each other and what they have in common. It is very important to see the difference here. At first glance, these two terms may seem similar, but they have many differences. Many are interested in the difference between profit and profitability. Specialists in the field of economics distinguish such differences:
- Profitability reflects relative value, and profit - absolute.
- Profit is called the difference between costs and revenue for its collection, and profitability - the ratio of revenue and revenue.
- Revenues indicate a material condition, a high level of profitability - for the efficient use of resources.
- Profitability is calculated in only one way, and profit can be calculated on sales, staff, funds and other economic indicators.
Ways to increase profit and profitability
In the fruitful activity of the company, a significant role is played by profit and profit planning. In this case, the main ways to increase profit and profitability:
- decrease in the value of elements of the advanced capital;
- reduction of current costs;
- raising the level of efficiency of labor and production.
The search for ways to increase the effectiveness of the use of all resources is one of the really important tasks of each structure. It is possible to identify and correctly use reserves through financial economic analysis. The study of financial results of work is called the main part of financial and economic control.