What is the difference between the rate of profit and profit. The simple rate of return is this. Factors Determining Business Performance

The profit indicator in domestic and foreign practice has been studied for a long time. Factors periodically arise that significantly affect the financial result of an economic entity.

The rate of return should be understood as the ratio of profit to advanced capital.The indicator should be expressed as a percentage... The considered financial ratio reflects the effectiveness of the use of funds. It is customary for financiers to call the rate of return the return on capital.

Factors Determining Business Performance

Frequent use of significant sources of increasing business efficiency involves the use of a set of measures that reflect the main directions of development and improvement of activities.

NextIt should be noted that the most important classification of factors of business efficiency, based on the definition of the level of production management. These are internal and external factors, since they significantly affect the degree of efficiency of entrepreneurial activity.

Let us single out in more detail three fundamental factors that directly affect the conduct of business and its economic result:

1. Equipment, so-called means of production... With high productivity, quality service and optimal workload, you can get maximum results with minimum costs.
2. Raw materials, materials and similar components... Good quality, minimal waste and low energy consumption combined with good inventory management should guarantee a high level of production, low rejects and minimal costs.
3. Technological security of business a good indication of the intensity of production.

How to determine the estimated rate of return

Using an initial investment as the denominator

To determine the estimated rate of return, you must first determine the annual profit, which is found by the formula:

P = BB-OI
where P is the profit of the organization
BB - gross revenue
OI - total costs

Then you should determine the cost of depreciation of fixed assets using data on the value of fixed assets.

This is done in two steps:

OS = NS - LS SI = OS / SPI
SPI - useful life

Ps = V - SI
B - revenue

The calculated rate of return can be determined by a simple ratio:

RNP = Ps / PV

Calculate the average profit for the company.

The considered method is based on the standard formula:

SNP = Ps / SV

Determine the average investment.

This indicator includes the cost of capital investments and is found by the formula:

SV = (HB + LS) / 2

Calculation of the rate of return:

RNP = PS / SV * 100

The ratio of the net cost savings to the initial investment, presented as a percentage, is the RNP.

It is quite easy to determine the SNP, all data can be obtained in the accounting reports.

How to calculate profitability?

Assessment of the financial performance of a business is not possible without calculating the profitability indicator, reflecting economic efficiency activities.

Several types of profitability are calculated: sales, products, assets, capital, and so on, for which there is a calculation procedure. Profitability ratios are often used in financial analysis and forecasting.

The existing methods of determining profitability pursue their own goals and use various reporting indicators.

Profitability of core business

This is a costly indicator that allows you to estimate the amount of profit per ruble of costs:

Rod = Profit from sales / cost.

Return on working capital

It characterizes the effectiveness of the ruble invested in working capital.

Rok = Net profit / Working capital

The higher the ratio, the more efficiently the working capital is used.

Return on equity

The profit received is not yet a sign of effective activity. It is necessary to calculate in more detail other financial indicators.

Rok = Net profit / Fixed capital

The ratio reflects what proportion of net profit falls on a unit of the company's fixed capital.

Calculating the return on sales

The coefficient characterizing the net profit in the volume of gross proceeds shows financial performance ... For the financial result, you can take different indicators of profit.

The regulatory value depends on a number of characteristics, for example, industry.

Profitability threshold

It is also called the break-even point, which characterizes such a level of business activity at which the amount of costs is equal to the amount of income and helps to calculate the financial strength of the company:

Pr = Pos costs / K gross margin

The gross margin ratio is calculated using the formula:

Vm = (Gross Revenue - Variable Cost) / Gross Revenue

When planning and forecasting, many leaders take this as the basis for decision-making when it is necessary to conduct business in such a way that this threshold does not exceed this threshold.

Cost-effective

Shows how much money spent on business is recouped, reflects how much profit is obtained per one ruble invested. Used for cost benefit analysis.

The indicator is defined as follows:

Рз = Profit / Decapitalized expenses.

Additive are used when the indicator is calculated as the difference or the sum of the resulting factors, multiplicative - as their product, and multiples - when the factors are divided by each other to obtain a result.

The application of these models leads to combined or mixed models. For a complete factor analysis profitability, multifactor models are used, which include different profitability ratios.

Net profit

Net income is a rather difficult economic category. The best minds of our time, both domestic and foreign, are engaged in its study.

The management of the company has a high responsibility for managing the enterprise in such a way that the business generates maximum profit. Because the owners always want to receive dividends.

Thus, the management faces the important task of managing revenues and expenditures in such a way that there are more of the former and as few as possible of the latter. Considering that when calculating net profit, all direct, variable and indirect costs are taken into account

The net profit of an economic entity should be understood as the share of gross receipts, minus expenses for payment of wages and tax payments.

Making a profit is the main goal of a commercial organization.

Profit generation is a rather complicated process, only a few owners have the necessary skills and ability to make the right management decisions.

In theory, profit is a component of the company that remains at the disposal of the owners, which can then be distributed at their discretion. Net profit figures are incredibly important for every enterprise, because they are more focused on investors.

Net profit calculation

Determining the bottom line is easy enough. First, you need to determine the period for which the calculations will be made.

Net profit is found by the formula:

PE = Financial profit + Gross profit + Other profit - Mandatory tax payments.

Distribution of net profit

Basic legislative framework that regulates the distribution of net profit is the Federal Law “On Limited Liability Companies”.

The organization can distribute profits quarterly, once every six months or annually. The decision is made at general meeting participants. Net profit, as we found out, is the financial result of the company.

Business owners can distribute it for the following purposes:

• payment of dividends
• business financing in the form of investments in fixed or working capital
• reserve capital and beyond

In addition, joint stock companies that issue shares and trade them on the stock exchange are interested in paying dividends, since this is the main indicator that investors are guided by when investing their capital.

Experienced owners understand when to make a profit and when to invest. As long as the business has room to grow and develop, it will be inappropriate to withdraw capital when it can be advanced.

Therefore, the study of the market, competitors and development prospects provides certain data on the stages of activity and the possible achievement of maximum production volumes.

At this moment, the company will no longer be able to actively and dynamically develop, but will enter a phase of stagnation, and then the net profit should be withdrawn in the form of dividends.

The profit is distributed among the participants in proportion to their shares. Also, it can be directed by the enterprise to any necessary purpose. Recently, the use of profit for charity has become widespread.

Formation of net profit

The volume of net profit of the reporting period does not provide complete information, due to the fact that not all income and expenses are taken into account. In turn, this line of reporting characterizes the activity quite indicatively.

There is a net profitmain indicator characterizing the activities of an economic entity. This indicator is of interest to creditors in order to study creditworthiness, counterparties to determine reliability and shareholders to calculate efficiency.

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Making a profit is the main goal of any company. The effectiveness of its achievement will be assessed by calculating the rate of net profit, a relative indicator that demonstrates how much profit is contained in each ruble of revenue. The optimal value is at the level of 8-20%. But it may be higher.

Making a profit is a natural expectation from the result of running any business. This is the difference between income and expenses, which is expressed in monetary terms. Depending on the calculation methods, the profit can be different (accounting, balance sheet, margin, nominal, real, from specific operations).

Rate of return

Net profit margin(N CP) is a relative indicator that is used to assess the feasibility of investing in a company and when predicting the further development of the company. This is the ratio of the company's net profit to the company's revenue. It is used as an indicator of profitability from the company's activities, allows you to assess the effectiveness of business processes and management in general.

In simple words: The indicator means what is the share of net profit in each ruble of revenue.

Calculation formula

N PE is determined by the formula:

• Пч - net profit;
• В - revenue minus VAT and the amount of assets.

Balance calculation formula:

• P. 2400 - line value 2400;
• P. 2110 is the value of line 2110.

The value of line 2110 is received as the difference between the amount on the credit of account 90 and VAT with excise taxes, and 2400 - as the difference between 2110 and all expenses.

Determination and calculation of net profit

Net profit occupies a special place in the settlement system. This is the company's income minus all costs (taxes, fees, other deductions to the budget). Its size determines the efficiency of the entire company. The higher the score, the better.

Several formulas are used for the calculation.

1 formula:

P H = V - S - R U - R K - R P - N, where:

• B - revenue;
• С - the cost of goods / works / services;
• Р У - administrative expenses;
• Р К - business expenses;
• R P - other expenses;
• H - taxes.

2 formula:

P H = P DN - N, where:

• P ND - profit before tax;
• H - taxes.

There are also other options for calculating this indicator, but they all give the same result.

In the balance sheet, net profit is reflected in line 2400. Calculated as:

P H (p. 2400) = s. 2110 - p. 2120 - p. 2210 - p.2220 - p.2310 - p.2320 - p.2330 - p.2340 - p.2350 - p.2410, where:

• S. 2110 - value of line 2110 (revenue);
• P. 2120 - the value of line 2120 (cost of sales);
• P. 2210 - the value of line 2210 (business expenses);
• P. 2220 - the value of line 2220 (administrative expenses);
• P. 2310 - the value of line 2310 (income from participation in organizations);
• P. 2320 - value of line 2320 (interest receivable);
• P. 2330 - value of line 2330 (percentage to be received);
• P. 2340 - the value of line 2340 (other income);
• P. 2350 - the value of line 2350 (other expenses);
• S. 2410 - the value of line 2410 (income tax).

Net profit is what remains for the further development of the company. It affects the solvency of the enterprise, characterizes its financial stability and reliability.

Indicator standard N PP

It is considered a good sign for a profit margin of 8-20%. However, you need to strive for the maximum value: the higher the indicator, the more efficiently the company works. But there is no single meaning that would apply to all organizations.

Attention! The value of H PE largely depends on the scope of the company, business specifics, technological processes, working conditions and other external and internal factors.

The indicator cannot be negative. This is always a positive number. It is measured as a percentage.

Important! In the event of a loss (negative profit indicator), N PE is not calculated. It doesn't make sense.

Calculation example

It is best to calculate the indicator over several years in order to be able to analyze it over time. For example, let us find H PE for the last 7 years of operation of a conditional company. All data can be downloaded in tabular form in Excel.

Thus, the NPP at the enterprise for the last 7 years has been within the recommended limits. However, during this time, there are jumps in the value in the range of 10.4-20.5%.

Why do you need to consider H PE? The economic meaning of the coefficient

The indicator is of interest to business owners, invited managers, banks, investors, and other interested parties.

Owners and managers need it to assess the financial situation of the company, search for opportunities to attract investment, assess the internal situation in the company, and conduct competitive analysis. It is used to make forecasts, adjust prices for goods and services, identify hidden financing opportunities, assess financial stability. If the indicator is too low or high, then first of all it is worth assessing the adequacy of prices, comparing them with direct competitors. If prices are at an acceptable level, then it is a matter of poor management or a crisis.

Banks and investors are interested in N PE to assess the feasibility of investing in business. This is an auxiliary indicator that is needed to provide a complete picture of the financial position of the company and allows you to see if the company is making a loss. In addition to the net profit rate, the values ​​of profitability (investments, capital, costs, assets) are taken into account.

Reference! If a company is going to take out a loan from a bank, then its interest rate cannot be higher than N PE. Otherwise, debt service will be an overwhelming burden.

Banks calculate the value of the indicator for the same purpose - to assess the solvency of a potential client. After finding N PE, it becomes clear whether the company will be able to pay interest while maintaining the current price level.

conclusions

The net profit margin is an auxiliary indicator for assessing the financial stability of a company, it is expressed as a percentage of net profit to revenue. Useful for owners and business managers, banks and potential investors.

To understand the success of an enterprise, one of the main criteria is the amount of profit. V general view profit is understood as the difference between the cash received from sales and the costs of the enterprise. There is the concept of the rate of return, the calculation formula and the economic essence of which we will consider below.

Rate of return concept

The Resolution of the Government of the Russian Federation of June 25, 2003 No. 367 "On Approval of the Rules for Conducting Financial Analysis by Arbitration Administrators" defines the net profit margin as the ratio of the net profit amount to the revenue amount excluding value added tax and excise taxes included in the selling price of the company's goods or services ...

The profit rate shows how many kopecks of profit are accounted for for each ruble of revenue. This indicator allows you to assess how effective is the ratio of enterprise costs and funds received from sales.

The formula for calculating the rate of return

Rate of return = Net profit / Revenue

The numerator contains the indicator of net profit, which is the final indicator of the company's profitability, cleared of all possible expenses.

For the lines of Form 2 "Profit and Loss Statement", the formula is calculated as:

Net income = Profit (loss) before tax - Current income tax - Change in deferred tax liabilities - Change in deferred tax assets - Other

The denominator is the indicator of revenue, reflecting the amount of revenue received by the enterprise from the sale of goods and services in this reporting period, net of value added tax and excise taxes. In Form 2 “Profit and Loss Statement”, this indicator is reflected in line 2110 “Revenue”.

Application of the rate of return

The rate of return is applied by the management of the company for:

• tracking the dynamics of business profitability, when the indicator is compared with previous periods;
• comparing the performance of branches, divisions or subsidiaries of the company for the purpose of analyzing the effectiveness of an asset and the subsequent decision on transforming the structure of the asset portfolio;
• benchmark with other enterprises in the industry, if the average rate of return for similar companies is known, which allows you to maintain or achieve competitive advantages at a price with low costs;
• the expected rate of return is used to decide whether to launch or abandon an investment project, or when choosing from several investment projects, when the investment with the highest rate of return is preferred.

Factors affecting the rate of return

The rate of return is formed by the ratio of the two indicators of profitability, respectively, the factors affecting the numerator and denominator also affect the final value.

The numerator, revenue, depends on the volume of sales in natural units and on the selling price of the company's goods or services. In the same time price policy the company, the established rules for payments - with deferrals, advance payments, and so on - have an impact on sales.

Net profit depends both on the price and volume of sales, and on all costs incurred by the company in the process economic activity, both production and related to other supporting processes in the company.

Thus, a company can sell large volumes of products at affordable prices for it, but if the cost is very high and other costs are also higher than their acceptable level, then the entire effect of large sales will be offset by ineffective production and management processes.

Shows in detail how for a certain unit of time there was a change in the amount of capital involved in an economic project. This indicator is necessary to assess economic activity in terms of cost reduction. It represents income for a given period, divided by the average size invested investment. It differs from the net profit margin, which is considered as the ratio of net profit to the company's revenue. One of the disadvantages of this indicator is that it ignores the difference between projects with similar average annual profits, but obtained over a different number of years.

Factors Affecting the Estimated Rate of Return

• return on investment - an increase in capital based on the results of investment activities. It can be stretched over time due to the nature of the project, in which real income from investments appears over a long period of time. It is calculated as the ratio of profit to invested investments x100;
• the capital structure of the enterprise - can stimulate or limit the company's actions aimed at increasing assets. Ideally, it should correspond to the type of activity and the requirements of the market player. The proportion between borrowed funds and the amount of risk capital should provide shareholders with an acceptable return on investment.
• probable savings in capacities - in simplified terms, it is understood as the delineation of the rate of return and savings in production capacities, as well as the assets of the enterprise, which affects the measure of accumulation of funds.
• shareholders' expectations - require the determination of the lowest indicators of long-term profit rate that can bring shareholders income, taking into account the degree of risk of the business, the possibility of increasing the cost of capital and the potential size of dividends. Most of the holders of securities are unaware of the real financial condition companies, so they have inflated expectations about the likely income and, accordingly, influence the company.

Methods for calculating the indicator

1. Using the main formula, the RNP is the ratio of the average annual profit (the difference between the annual income and the cost of equipment depreciation) to the initial investment. The latter is understood as the amount of investment in the main means of production together with adjustments working capital caused by this investment.
2. Using the basic formula - the ratio of the average annual profit to the average value of the investment (acts as the cost of capital investments required for the operation of the project in addition to the total residual value of the equipment, divided in half). This dependence is expressed by the formula: average attachment = (initial attachment + liquidation value) /2.
3. If it is necessary to use the RNP in order to characterize projects to reduce production costs, apply the formula for the ratio of net cost savings to the initial investment. The first parameter is defined as the difference between the estimated reduction in maintenance costs work force as a result of the introduction of new equipment and the total value of operating costs together with the cost of depreciation.

Nobody does business at a loss. Even the sale of seeds brings some profit to the seller. But here it is easy to figure out what it will be and where to use it. At enterprises, the issues of profit are more difficult to solve - first you need to find funds, invest them, sell goods, distribute debts, get a net profit. How is the profit rate calculated in production? Let's try to figure it all out.

Profit and production costs

In any field of activity, especially in production, profit and cost are considered important concepts. These are the main economic indicators that directly form the cause and financial characteristics of the enterprise. In order for the company to eventually form a net profit margin, it is always necessary to incur expenses. An important point is that expenses do not exceed revenues, otherwise the organization's activities are meaningless. Therefore, the costs must be properly allocated. But the profit already depends on how correctly employees distribute these costs and in what direction they will be directed.

Rate of return: definition

Having dealt with some concepts, it will become easier to understand the features of the production economics. So, the rate of profit is the percentage ratio between the profit for a certain period to the capital advanced before its beginning. In other words, this figure reflects the capital gains that were invested at the beginning of the reporting period. The funds advanced, in turn, include workers' wages and production costs. The main thing in this definition is the mass of profit.

What influences the dynamics of profits?

The rate of return, like any other economic indicator, depends on many factors. One of the factors influencing its dynamics is the market price and market macroeconomic state. And, of course, the rate of net profit depends on the supply and demand in the market. This indicator determines the return on investment in relation to the amount of money invested.

When there is a difference between these indicators towards a decrease in demand for the company's products, this indicates that the profit rate is at a low level, and there is a threat of loss.

Its dynamics are influenced by changes:

• the structure of capital, if the costs of the elements of constant capital are less, then the rate of profit becomes higher, and vice versa;
• capital turnover rate - the higher it is, the better it affects profits; more income comes from short-term capital turnover, as opposed to long-term.

The factor determining the rate of return

The main determining factors of the rate of return are considered to be the mass of profit, the rate of capital turnover, the structure of the costs of invested money, the scale of the means of production and their savings. Each of these factors affects income and its components in its own way. But the biggest impact on profitability is the bulk of the profit. This is the absolute value of the profit received. The higher this indicator, the more profitable business... This approach helps to determine the right steps in the subsequent development of the business.

How can the profit be expressed?

Profit can be expressed in the profitability of the enterprise. Since this indicator is very closely intertwined with the rate of return. How is this expressed? As well as profit, the real indicator can be determined at the end of the project life cycle.

The qualitative measurement of profit is directly the rate of profit, which is calculated by the ratio of surplus value to the capital advanced.

The owner can calculate the income received as a percentage of the invested funds or in monetary units common in many countries. At the moment, dollars are used when receiving and calculating profits.

How is this indicator calculated?

Profit is the end result of the enterprise, which is determined by the following formula:

P = B-W total.,

where "P" - profit, "B" - proceeds from the sale of products, "Z obsh." - the total cost of creating a product and its promotion.

The calculation of the rate of return is determined by the ratio of net profit to total capital investment. The data is obtained as a percentage.

This allows you to determine the assessment of projects that directly require capital investment. And on the basis of the data obtained, conclusions can be drawn.

The higher the indicator of the value of profit, the better for the enterprise, since the profit can be invested in the further development of the organization's project or the expansion of production. In the future, this will have a beneficial effect on the activities of the enterprise and increase the level of income. According to the profit indicators, one can judge the expediency of the contribution of funds to the company. The value of this indicator speeds up the decision-making process.

Two ways a business can generate income

Internal rate of return is a type of income that arises when investments and cash flows from investments are equal. In this case, the enterprise will receive income in two ways:

• capital investments at IRR (%) in any monetary instruments;
• capital investments producing cash flow, in this case, all components of this flow are invested at IRR (%).

IRR in this case plays the role of a barrier. For an investor, this is a very important indicator, because, having studied it, he sees: develop a project or reject it. If the value of the invested funds is higher than the value of this indicator, then the project will be unprofitable and must be rejected.

IRR is the ratio of the cost of capital raised to the benefits of the project, taking into account the funds spent. The most favorable value of this indicator is achieved when the time between discount rates is reduced.

How is the average rate of return formed?

There is a natural mechanism for the formation of the average rate of return. This value is no longer determined specifically by the market; it is formed by the owners (capitalists) and investors. Here the leading role is played by the emergence of competition, which we will discuss below.

In general, the process of the formation of the average rate of profit lies in the fact that the capitalists, seeing a sufficiently high profit received by the company, seek to earn more in production. For this reason, more profitable terms sales. Investors are also looking to inject their capital into a profitable industry. Intra-industry competition arises as more homogeneous industries appear. But there may also be cross-sectoral competition, which also determines the formation of the average rate of profit.

Influence of competition on this indicator

The average rate of return is influenced by two types of competition: inter-industry and intra-industry.

Intra-industry competition is competition in one industry where similar goods are produced. Here all forces and means are directed towards the production of this product. In this case, its cost rises. In the market, the competition of a product is determined not by individual, but by the same social value. And its value is due to average indicators. As a result, the profit rate of the enterprise may tend to decline, which has a bad effect on the work as a whole. To avoid such a phenomenon, capitalists seek to introduce new technologies into operation that facilitate a fast production process with minimal costs and try to match market prices without loss.

Interindustry competition is competition between the capitalists themselves from different industries, where profit, the rate of profit are at a higher level. Since capitals are poured into different industries, they have a different structure. As you know, surplus value is created only by attracting employees, a smaller capital also accounts for the corresponding mass of surplus value. And in enterprises with a high organic composition of capital, the surplus value will be less. The emergence of this type of competition leads to the transfer of funds from one industry to another. The movement of capital leads to the fact that the surplus value in the industry with a low structure decreases, the production of goods increases, the market price falls, and the sectoral mass decreases. As a result of the transfusion, the average rate of return is leveled, which is determined by the formula: P΄ cp = Ʃ m: Ʃ (C + V) × 100%,

where Ʃm- the total surplus value that is created in different industries;

Ʃ (C + V)- the total capital advanced in various industries.

As a result, the company receives an average profit across all industries.

2 Estimated rate of return (aror)

The second accounting-based capital investment analysis method is the calculated rate of return (AROR), also known as return on capital (ROI). As the name suggests, this method compares the return on the project and the capital invested. One of the drawbacks of this method is that there are many ways to define “income” and “invested capital”. Various income estimates may or may not include finance costs, depreciation, and taxes. However, most general definition The concepts of “income” in the calculation of AROR are “receipts before interest and taxes”, which includes depreciation and amortization.

Usually AROR is used in two ways depending on the definition of the invested capital. It can include either the initial capital invested or the average capital invested over the life of the investment. The initial invested capital consists of the purchase and installation costs of fixed assets and the increase working capital required at the initial stage of investment. However, in the last phase of the project, the capital invested is reduced to the residual value of the equipment plus the remaining components of the working capital.

The formula can be represented as:

(2.2),

The results obtained differ markedly from each other. However, if both the establishment of eligibility criteria and the financial analysis are made according to the same method, the investment decisions made on their basis will not differ.

Like the ROI, the AROR method has its drawbacks. It uses book profit (not cash flows) as an estimate of the profitability of projects. It has already been noted that there are many ways to calculate the balance sheet profit, which makes it possible to manipulate the AROR indicator. Inconsistencies in the calculation of earnings lead to very different AROR values, and often these discrepancies are the result of changes in the accounting policies of the firm, which may be unfamiliar to the investment decision maker. In addition, the balance sheet profit suffers from “distortions” such as depreciation costs, gains or losses on the sale of fixed assets, which are not real cash flows and therefore do not affect the well-being of investors.

The second major drawback of AROR (like PP) is that it does not take into account the time aspect of the value of money. The return on investment is calculated as the average reported profit, although income is received at different periods of time, and it can change from year to year.

Another problem with AROR arises when the “average invested capital” case is used. Here the initial costs and residual value of the investment are averaged to reflect the value of the assets tied together over the life of the investment. The higher the residual value of the investment, the higher the denominator in the AROR formula becomes and the lower the value of the calculated rate of return itself.

The residual value paradox is a problem in the AROR investment valuation that can lead to poor decision making.

In practice, AROR is very often used to inform investment decisions. This may be due to the fact that decision makers often prefer to analyze investments in terms of profit, since the performance of managers themselves is often judged by this criterion. There is no doubt that the use of this indicator for project appraisal leads in some organizations to make erroneous investment decisions.

Thus, it should be noted that the two main “traditional” methods of analysis are not ideal. Although both are used in practice, they also have a number of serious disadvantages that lead to incorrect investment decisions. In the theoretical literature on investment activities, these methods are not given much attention. They have been supplanted by "complex" methods rooted in economic theory.

The economic approach to the analysis of projects involves determining the value of the project in comparison with other projects, as well as analyzing the financial attractiveness of the project, subject to limited resources. The most famous and often used in practice is the indicator of net present value (NPV).

Net present value allows you to get the most generalized characteristics of the investment result, that is, its final effect in absolute amount. Net present value is understood as the difference between the amount of cash flow reduced to the present value (by discounting) for the period of operation of the investment project and the amount of funds invested in its implementation.

(2.4),

where NPV is the net present value;

DP is the amount of cash flow (in real value) for the entire period of operation of the investment project (before the start of investments in it). If the full period of operation before the start of a new investment in a given object is difficult to determine, it is taken in the calculations in the amount of 5 years (this is the average depreciation period of the equipment, after which it must be replaced);

IS - the amount of investment funds (in present value) allocated for the implementation of the investment project.

If we reveal the components of the previous formula, then it will take the form:

NPV =

(2.5),

Where B - total benefits for the year t;

С - total costs for the year t;

t– the corresponding year of the project (1,2,3,… n);

i– discount rate (interest rate).

Characterizing the indicator of net present value, it should be noted that it can be used not only for a comparative assessment of the effectiveness of investment projects, but also as a criterion for the feasibility of their implementation.

An investment project for which the net present value is negative (see Figure 1a) or equal to zero (see Figure 1b) should be rejected, since it will not bring the investor additional income on invested capital. Investment projects with a positive value of the indicator of net present value (see Figure 1c) allow increasing the investor's capital.

The net present value (NPV) has obvious advantages and disadvantages.

The advantage is manifested in the fact that this indicator is absolute and takes into account the scale of investment. This allows you to calculate the increase in the value of the company or the amount of capital of the investor. But these advantages also lead to disadvantages.

The first is that the value of net present value is difficult, and in some cases impossible to normalize. For example, the net present value of a certain project is equal to UAH 20 thousand. Is it a lot or a little? It is difficult to answer this question, especially if we consider an uncontested project. You can, of course, set a lower bar for the amount of net present value, if not reached, the project is rejected. But this is largely a voluntaristic measure that does not reflect the essence of the investment process.

The second drawback is associated with the fact that the net present value does not explicitly show what investment efforts the result has been achieved. Although the size of investments is taken into account in calculating net present value, a relative comparison is not made.

D Another general criterion, which is much less frequently used in the practice of design solutions, is the “benefit-cost” ratio. It is defined as the sum of the discounted benefits divided by the sum of the discounted costs.

(2.6),

The criterion for selecting projects using the benefit-cost ratio is that when the value of the coefficient is equal to or greater than one, the project is recognized as successful. Despite the popularity of this indicator. It has disadvantages. This indicator is not acceptable for ranking according to the advantages of independent projects and is absolutely not suitable for the selection of mutually exclusive projects. This figure does not show the actual net benefits of the project. For example, a small project may have a significantly higher benefit-to-cost ratio than a large project, and if you do not use the NPV calculation, you may make an erroneous project decision.

Profitability index shows the relative profitability of the project or the discounted value of cash receipts from the project per unit of investment.

The yield index is calculated using the formula:

(2.7),

where ID is the profitability index for the investment project;

DP - the amount of cash flow in the present value;

IS - the amount of investment funds allocated for the implementation of an investment project (with a difference in the timing of investments, also reduced to the present value).

The indicator "index of profitability" can also be used not only for comparative assessment, but also as a criterion when accepting an investment project for implementation.

If the value of the profitability index is less than or equal to one, then the project should be rejected due to the fact that it will not bring additional income investor. Consequently, investment projects can be accepted for implementation only with a value of the profitability index above one.

Comparing the indicators "profitability index" and "net present value", let us pay attention to the fact that the results of evaluating the efficiency of investments are in direct relationship: with an increase in the absolute value of net present value, the value of the profitability index also increases and vice versa. In addition, if the net present value is zero, the profitability index will always be equal to one. This means that only one (any) of them can be used as a criterion indicator of the feasibility of implementing an investment project. But if carried out comparative assessment, then in this case both indicators should be considered: net present value and profitability index, since they allow the investor to evaluate the efficiency of investments from different sides.

Payback period- this is the period during which the amount of income received will be equal to the amount of investments made.

The calculation of this indicator is carried out according to the formula:

(2.8),

where PO is the payback period for the investment project;

IS - the amount of investment funds allocated for the implementation of an investment project (if the timing of investments is reduced to the present value);

- the average amount of cash flow (in present value) in the period. For short-term investments, this period is taken as one month, and for long-term investments - for one year;

n is the number of periods.

When characterizing the "payback period" indicator, one should pay attention to the fact that it can be used to assess not only the efficiency of investments, but also the level of investment risks associated with liquidity (the longer the project implementation period until its full payback, the higher the level of investment risks ). The disadvantage of this indicator is that it does not take into account those cash flows that are formed after the payback period of the investment. So, for investment projects with a long service life after the payback period, much large sum net present value than for investment projects with a short operating life (with a similar and even faster payback period).

Internal rate of return(IRR) is the most complex of all indicators from the standpoint of the mechanism for its calculation. This indicator characterizes the level of profitability of a particular investment project, expressed by the discount rate at which the future value of the cash flow from investments is reduced to the present value of the invested funds. The internal rate of return can be characterized as the discount rate at which the net present value will be reduced to zero during the discounting process.

To determine the internal rate of return, methods of approximate calculations are used, one of which is the method of linear interpolation. To apply this method, you must perform the following algorithm:

In this figure

is the net present value corresponding to the value of the penultimate interest rate, and

is the net present value corresponding to the value of the last interest rate.

Using the interpolation method, we find the calculated value of the internal rate of return using the formula:

(2.9)

When characterizing the “internal rate of return” indicator, it should be noted that it is the most acceptable for comparative assessment. At the same time, a comparative assessment can be carried out not only within the framework of the investment projects under consideration, but also in a wider range (for example, comparing the internal rate of return on an investment project with the level of profitability of the assets used in the course of the company's current economic activities; with the average rate of return on investment; with the norm profitability on alternative investment - deposits, purchase of government bonds). In addition, each company, taking into account its level of investment risks, can establish for itself the criterion indicator of the internal rate of return used for evaluating projects. Projects with a lower internal rate of return will then automatically be rejected as inadequate for real investment efficiency. Such an indicator in the practice of evaluating investment projects is called the “marginal rate of internal rate of return”.

Despite some positive properties of the IRR indicator, it has disadvantages:

There may not be a single IRR for a project. Such a multitude of solutions can appear if the annual cash flows during the project implementation period change sign (from positive to negative and vice versa) several times. This happens when the income received from the implementation of the project is reinvested in the project again.

The use of one value of the discount rate provides that its value will be constant throughout the entire period of the project. But for projects with a long implementation period (if we take into account their high uncertainty in later periods), it is hardly possible to apply a single discount factor throughout the entire project life cycle.

Despite such criticism, IRR is firmly rooted in project analysis and most projects rely on it.

Modern project analysis insists on the combined use of NPV and IRR indicators. The CA criterion for evaluating the project, the internal rate of return sets the border for the acceptance of projects for implementation. Formally, IRR shows the discount rate at which the project does not increase or decrease the value of the company; therefore, domestic analysts call this indicator a proven discount. It shows the boundary value of the discount rate that divides investments into acceptable and unacceptable.

Let's give an example of calculating performance indicators.

A project for the development of the production of children's toys has been submitted for consideration. The planned cash flows in thousand UAH, which arise as a result of the project, are distributed over the years:

Let's say the project is being implemented using credit funds at a bank interest rate of 10% per year. Will your decision change if the bank increases the rate to 18%?

To solve the problem, it is necessary to determine the criteria for the project's net present value, the benefit-cost ratio and the internal rate of return, and calculate the value of discounted cash flows at a discount rate of 10 and 18%. The calculation results are summarized in the table.

At a discount rate of 10%, the NPV for the project is equal to UAH 144.7 thousand. ... benefit ratio - costs B / C =

, which indicates the feasibility of the project, because NPV> 0 and B / C> 1.

At a rate of 18% NPV = -103.4, since NPV

Let's calculate the value of IRR, which reflects the limit value of the discount rate, above which the project becomes unprofitable.

IRR = 10 +

Let's make a conclusion. With a discount rate of 10%, the project is profitable, but with an increase in the discount rate greater than 14.2%, it becomes unprofitable.

When forming an investment program, it becomes necessary to compare projects with different validity periods. According to NPV indicators taken from business plans, it is not correct to make a comparison. In this case, the method for calculating the NPV of the given flows is used, which is as follows:

The least common multiple (LCM) of the validity periods of the analyzed projects is determined Z = LCM (i, j);

Considering each of the projects as repeating a certain number of times (n) in the period Z, the total NPV for each of the pairwise compared projects is determined by the formula:

NPV = NPV

…) (2.10),

Where NPV i is the net present value of the original project (taken from the business plan);

n is the duration of the project.

i - interest rate;

Example. Select the preferred project from the population projects A, B, C with different dates of implementation, using the data:

The smallest common multiple for the duration of projects is 6. During this period, project A can be repeated three times, and project B - twice. We analyze in pairs projects A and B. the total NPV of project A (A) in the case of a threefold repetition:

NPV (A) = 3.3 +

mln.

Total NPV (B) in the case of a double repetition:

NPV (B) =

mln.

Project B is preferred.

We make similar comparisons for pairwise comparison of projects B and C, we get that in the case of three times repetition of project C, the total NPV will be:

NPV (V) = 4.96 +

mln.

In this case, project B is preferable.

For the formation of the investment program, we have a priority number of projects: C, B, A.

If you analyze dozens of projects that differ in duration, the calculations take more time. In this case, they can be simplified if we assume that each of the analyzed projects is implemented an unlimited number of times. In this case, the number of terms in the formula for calculating NPV (i, n) will tend to infinity, and the value of NPV (i, +) can be found using the formula for an infinitely decreasing geometric progression:

NPV (i, +) = lim i t NPV (i n) = NPV

(2.11)

Of the two pairwise compared projects, the one with the larger NPV (i, +) is preferred.

Project A: NPV (2, +) = 3.3 *

mln.

Project B: NPV (3, +) = 5.4 *

mln.

Project B: NPV (2, +) = 4.96 *

mln.

That. it turns out the same sequence of projects: C, B, A.

Profitability analysis

In a market economy, profit is the purpose of the existence of enterprises. Profitability characterizes the ability of an enterprise to make a profit, reflecting in general terms the efficiency of the entire economic activity of the enterprise.

In general, profitability as an indicator of efficiency is determined by the ratio between the received economic and financial benefits, on the one hand, and the efforts of the company associated with their receipt, on the other hand. The indicator under consideration can have different forms, depending on the gross or net profit in the numerator and the calculation base expressing efforts or costs (economic asset, capital, cost of sales, cost of goods sold at the selling price, etc.).

V analysis it is necessary to present the main indicators that allow you to analyze the level of profitability.

Gross margin(indicator 46) characterizes the share of gross profit per one lei of net sales.

Its value should remain unchanged or increase over time. A decrease in the level of this indicator means an increase in the cost of sales. The gross profit margin is influenced by the following factors: structure of products sold, cost of sales, sales price. The volume of production does not have a direct effect, since, acting on the numerator and denominator in the same proportion, the effect on the gross profit rate becomes zero. However, the volume of production has an indirect effect through the cost, since in conditions when the volume of production increases, the cost per unit of production decreases due to fixed costs.

Operating margin(indicator 47) reflects the ability of the company to make a profit from its main activity per one lei of sales.

Net profit margin(indicator 48) characterizes the ability of an enterprise to generate net profit, received on average by an enterprise per one lei of net sales.

An increase in the level of this coefficient means effective management of the production process. This ratio depends on the size of the income tax rate and the ability of the company to enjoy tax benefits. In conditions when the tax rate is stable, the level of net profit depends on the efficiency of the use of borrowed sources. The net profit rate is analyzed in dynamics and the higher its value, the "richer" the shareholders.

Economic profitability (ROA)(indicator 49) characterizes the efficiency of funds used in the production process, regardless of whether they are formed at the expense of own or borrowed sources of financing. Its value can be negative if the company incurs losses.

The magnitude of economic profitability can be increased either by increasing the number of turnover of assets, or by increasing the rate of net profit, or both.

The analysis of the norms of economic profitability is carried out in dynamics and it must be higher than the inflation rate in order for the company to stay on the market. In Moldova, the value is not less than 10-15%, that is, for each lei, at least 10-15 ban of profit. (20-25% are of the opinion)

The rate of economic profitability will allow the company to renew and increase its assets as quickly as possible.

Return on capital advanced (indicator 50)

is a private indicator of economic profitability and reflects economic achievements in the use of production assets, regardless of the financing procedure and the tax system.

Financial profitability (ROE) (score 51) measures returns equity capital, and, consequently, the financial investment of the shareholder in the shares of the enterprise.

Financial profitability reveals the degree of efficiency of equity capital and rewards the owners of the enterprise by paying them dividends and an increase in reserves, which, in essence, represents an increase in the property of the owners. The recommended level is not less than 15%

Financial profitability depends on the level of economic profitability and the financing structure of the enterprise. It may seem strange, but an increase in financial profitability can be achieved by increasing debt. Like other indicators, the return on equity, analyzed in dynamics and in relation to other indicators. The high level of this indicator may be the result of insufficient capitalization (small amount of equity capital invested in the enterprise by shareholders), and not the high efficiency of the enterprise.

The ratio of return on sales (shows how much gross profit falls on a unit of products sold). Gross profit line 130F2

Net sales of line 010F2

Return on Investment (ROI) - shows how many monetary units the company needed to get one monetary unit of profit.

3-factor model of "Du pont" company.

The main apparatus is rigidly determined factor models, which are widely used in Western accounting and analytical practice.

For example, for the analysis of the return on equity ratio, the following rigidly determined three-factor dependence is laid down:

From the presented model, it can be seen that the return on equity depends on the following three factors:

Profitability of sales

Resource efficiency

The structure of the sources of funds advanced to the given enterprise. The significance of the selected factors from the standpoint of current management is explained by the fact that in a certain sense they generalize all aspects of the financial and economic activities of the enterprise, in particular, the first factor summarizes the statement of financial results, the second is the balance sheet asset, the third is the balance sheet liability.

PROFIT RATE. PROFITABILITY

As an absolute value, profit is related to the scale of production, depends on the size of the enterprise, which to a certain extent limits its analytical capabilities as a criterion for the effectiveness of its work in a market economy.

The indicators of profitability (profitability) of the enterprise allow us to assess its financial results and ultimately efficiency. These indicators usually include the level of profitability, or the ratio of profitability, which is expressed as the ratio of a particular type of profit to any base. Numerous profitability indicators reflect different aspects of the enterprise. It is quite natural that, in general, the efficiency of an enterprise can be determined only by a system of profitability indicators.

Return on sales, which is calculated by the formula:

Rv (ROS) = (P / VR) 100%

where P is the profit from sales;

Вр - sales proceeds.

An increase in this indicator may reflect an increase in product prices when fixed costs or an increase in demand and, accordingly, a decrease in unit costs. This indicator shows the share of profit in sales proceeds, therefore, the ratio of profit and total cost of sales in it. It is with the help of this indicator that an enterprise can decide on the choice of a way to increase profits: either to reduce the cost price, or to increase the volume of production. This indicator, calculated on the basis of net profit, is called net profitability of sales.

Return on assets (return on investment):

RA (ROA) = (P / A) 100%

where P is the profit of the enterprise (profit from sales, balance sheet or net profit can be used);

A - the average value of the assets (property) of the enterprise for a certain period.

This indicator reflects the efficiency of using all the property of the enterprise. The dynamics of return on assets is a barometer of the state of the economy. As a factor of production, return on assets and its changes have an incentive function in that it sends a signal to investors. In this case, the strength of the signal depends on the quantitative assessment or the level of return on assets. The average return on assets in Japan is about 10.3%, while in the US it is 16.8%. In Japan, it is considered profitable if the capital investment pays off in 7 years, and in the USA - 4.5 years.

Return on assets can be thought of as the product of the following two indicators:

R A = R B * O A = (P / VR) * (BP / A) = (P / A)

where О А - assets turnover, turnovers.

Thus, the return on assets is primarily influenced by two groups of factors related to the return on sales and asset turnover.

Usually, when analyzing the profitability of assets, an analysis of current assets is carried out, i.e. working capital, since their influence on this indicator depends significantly on the state and organization of working capital. The calculation is carried out according to the following formula:

R О C = PP / OS

where PE is the net profit of the enterprise;

OS - the average value of the second section of the asset of the balance sheet of the enterprise - current assets (current assets).

An enterprise can in a similar way calculate the profitability of non-current assets (fixed assets and intangible assets), i.e. the first section of the asset balance sheet.

Return on equity (equity) capital reflects the profitability of the company's own funds:

R SK (ROE) = CP / SK

where SK is the average value of the company's equity capital for a certain period.

The peculiarity of this indicator is that, firstly, it shows the efficiency of using own funds, i.e. the net profit earned on the invested ruble, and, secondly, the degree of risk of the enterprise, which reflects the growth in the return on equity.

In connection with R SC, the famous Dupont formula can be used:

R SK = (PR / BP) * (BP / A) * (A / SK)

This formula significantly expands the analytical capabilities of the enterprise, as a result of which it is able to determine:

· Dynamics of net profit in sales proceeds (profitability of sales);

· The efficiency of asset use based on sales proceeds and current trends (asset turnover);

· The structure of the capital of the enterprise based on the share of own funds in the assets;

· The influence of the above factors on the return on equity.

3. Profit, rate of return

At a certain price level, a decrease in costs leads to an increase in income, i.e. reverse side production cost is profit. The lower the costs, the greater the profit, and vice versa.

Quantitatively, profit is the difference between the income from the sale of a product and the total cost of its production.

By its economic nature, profit is a converted form of net income. The source of net income is surplus and, to a certain extent, necessary labor. Since net income is a distribution category, it can therefore be defined as the realized excess of the value of a commodity over production costs.

As a result of the deviation of the price of a commodity from its value, the net income does not quantitatively coincide with the value of the surplus product. The isolation of the producer's costs, which take the form of prime cost, determines the isolation of income, which takes the form of profit.

A. Smith considered profit, on the one hand, as a result of the worker's labor, since the value that he adds to the cost of materials falls into two parts: the remuneration of his labor and the profit of the entrepreneur. On the other hand, A. Smith considered profit as a result of the functioning of capital.

D. Ricardo believed that the amount of profit depends on wages: profit increases if wages decrease. One of the main factors in increasing profits is public productivity labor, which increases leads to a decrease in the cost of labor.

According to Karl Marx, profit is a converted form of surplus value, that is, profit is a function of the advanced capital. The isolation of capital expenditures in the form of production costs leads to the fact that the surplus value begins to represent the excess of the value (price) of the commodity over the costs of production and to act in the form of profit (p).

Many Western economists, when explaining profit, use the theory of three factors of production by J. B. Say, according to which labor, land and capital take part in the creation of value. Profit is the income from the use of the means of production (capital) and as a payment for the entrepreneur's labor to manage and organize production and, thus, distinguish between income for capital and entrepreneurial income.

Criticizing the theory of factors of production, K. Marx substantiated the proposition that living labor creates new value. However, labor productivity depends on technological equipment production, fertility, location of land, etc. Consequently, capital and land contribute to the creation of more value.

Since in the former USSR market relations did not really exist, then the attitude to profit was also appropriate. It was believed that it could be set by adjusting prices and tariffs. Since the price was actually considered as an administrative standard, the profit was also a product of rationing. Until the early 60s of the twentieth century. the dominant idea was that it was enough to include profitability in the price, as the ratio of profit to cost at the level of 4-5%; accordingly, pricing was carried out in practice. In the 60s, a profitability of up to 15% began to be included in the centralized price.

In a modern market economy, profit and profit rate are the main reference point and at the same time an indicator of the state of production, a criterion of its efficiency. The rate of profit shows the efficiency of using all capital, the degree of its increase. In modern conditions, the annual rate of return of industrial corporations in the United States is 11-13%, in Western Europe - 8-10%.

Profit- this is the difference between the amount of sales (gross proceeds) from the sale of products and the total cost of products.

P = C - S / S or (10.8)

p = W – K (10.9)

Enterprise profit- this is the difference between the cash proceeds (wholesale price of the enterprise) from the sale of products (works, services) (C) and their full cost (C / C).

The profit of the enterprise received from the sale of products (works, services) and adjusted depending on other income (+) and losses (-) is called balance sheet profit.

P B = C - S / S (10.10)

Since January 1, 1991 in Ukraine, not commercial products are used as a calculated indicator, but sold ones. Therefore, the mass of profit from sales is defined as the difference between the volume of products sold (excluding sales tax) and the total cost of sales (production and sales costs).

Since 1993, the value added tax, excise tax has been used instead of the value added tax.

The part of the balance sheet profit that remains after taxes and other payments is called net profit.

P P = P B - taxes, mandatory payments (10.11)

The main ways to increase profits enterprises:

Increase in revenue from the sale of products (works, services) based on an increase in production marketable products, improving its quality and selling price.

Reducing the cost of production.

Balance sheet and net profit of the enterprise in general form reflects the final results of management, are the main indicators of the economic and financial activities of the enterprise.

Gross income of the enterprise- the difference between the proceeds from the sale of products (B) and the fund for reimbursement of expended means of production (FV):

VD P = V - PV, or (10.12)

the amount of the wage fund and the balance sheet profit of the enterprise:

VD P = FZP + P B (10.13)

The aggregate of the wage fund and the net profit of the enterprise forms the commercial income of the enterprise, which is at its complete disposal.

From the point of view of the financial capabilities of the enterprise in expanded reproduction, it is necessary to take into account the reproductive efficiency of the enterprise. The indicator of the gross income of the enterprise (VD P) acts as a full reproductive effect, and the indicator of net product (P H) as the final reproductive effect.

Thus, gross income and net profit are the sources of formation of accumulation and consumption funds, and their size, dynamics, structure of distribution and use determine the rate and efficiency of expanded reproduction of the enterprise.

Therefore, the question of the size of profit is important for the enterprise (firm), however, one should distinguish between absolute and relative indicators of profit.

Absolute value of profit expressed by the concept of "mass of profit". By itself, the mass of profit does not mean anything, so this value should always be compared with annual turnover enterprise (firm) or the amount of its capital. In this case, the indicator of the dynamics of profit is also important, comparing its value in a given year with the corresponding value of previous years.

Relative profit indicator is the rate of return (profitability), which shows the degree of return of production factors used in production.

To determine the efficiency (return on profit) of the current costs of the enterprise for the production of products (works, services), the indicator is used rate of profit(PI), that is, the ratio of the balance sheet profit to the total cost of goods sold as a percentage. Its formula is as follows:

(10.14)

P B - the mass of profit from the sale of products (balance sheet profit),

С / С - full cost price.

or

(10.15)

However, production efficiency cannot be judged by weight and profit rate alone. It is necessary to take into account the intensive factors affecting the movement of profits. It:

an increase in labor productivity as a result of saving living and materialized labor;

cost reduction;

quality of products (work, services);

return on assets, that is, the efficiency of using production assets.

Therefore, the efficiency of the enterprise is largely characterized by a generalizing indicator - the level of profitability, which is one of the basic indicators of production efficiency at the macro and micro levels.

Profitability- This is a quantitative definition of the ratio of the balance sheet profit to the average annual value of fixed assets and normalized working capital in percent. In the practice of economic activity of the enterprise rate (level) of profitability determined by the formula:

(10.16)

- rate of return,

- balance sheet profit,

- the average annual cost of fixed assets,

OS N - the cost of circulating standardized funds.

Therefore, the rate of return shows the degree of efficiency (return on profit) of the used production resources. Profitability characterizes the level of return and the degree of use of funds in the process of production and sale of products (works and services).

The main ways to increase profitability:

cheaper elements of advanced capital;

reduction of current production costs.

Ultimately, the condition for both is the widespread use of the results of scientific and technical progress in the production, leading to an increase in productivity. social labor and, on this basis, a decrease in the unit cost of resources used in production.

In a market economy, profit is the basis for the development of an entrepreneurial firm. In the Western economic literature, several theories are proposed for optimizing the activities of a firm, but they are not based on the principle of maximizing profits. So, according to one of the theories, the goal of a firm should not be to maximize profits, but to sell. The company is tasked with achieving and retaining a certain level of profit over the longest possible time interval. In this case, the firm will focus on the industry average rate of return, which is the result of intra-industry competition.