In simple words, what is profitability? The most profitable business in Russia.

Hello! Today we’ll talk about profitability, what it is and how to calculate it. aimed at making a profit. The correct operation and effectiveness of the management methods used can be assessed using certain parameters. One of the most optimal and informative is the profitability of the enterprise. For any entrepreneur, understanding this economic indicator is an opportunity to assess the correctness of resource consumption in the enterprise and adjust further actions in all directions.

Why calculate profitability

In many cases, the financial profitability of an enterprise becomes a key indicator for analyzing the activities of a business project, which helps to understand how well the funds invested in it pay off. Correctly calculated indicators for several factors and items are used by the entrepreneur for pricing services or goods, for general analysis at the working stage. They are calculated as a percentage or used in the form of a numerical coefficient: the larger the number, the higher the profitability of the enterprise.

In addition, it is necessary to calculate enterprise profitability ratios in the following production situations:

• To forecast the possible profit that the company can receive in the next period;
• For comparative analysis with competitors in the market;
• To justify large investment investments, helping a potential transaction participant determine the projected return on a future project;
• When determining the real market value of a company during pre-sale preparation.

Calculation of indicators is often used when lending, obtaining loans or participating in joint projects, developing new types of products.

Enterprise profitability

Discarding scientific terminology, we can define the concept:

Enterprise profitability as one of the main economic indicators that well characterizes the profitability of an entrepreneur’s labor. Its calculation will help you understand how profitable the chosen project or direction is.

Many resources are used in the production or sales process:

• Labor (hired workers, personnel);
• Economic;
• Financial;
• Natural.

Their rational and correct operation should bring profit and constant income. For many enterprises, analysis of profitability indicators can become an assessment of operating efficiency for a certain (control) period of time.

In simple words, business profitability is the ratio between the costs of the production process and the resulting profit. If after a period (quarter or year) a business project has produced a profit, then it is called profitable and beneficial for the owner.

To carry out correct calculations and predict indicators in future activities, it is necessary to know and understand the factors that influence profitability to varying degrees. Experts divide them into exogenous and endogenous.

Among exogenous ones there are:

• Tax policy in the state;
• General sales market conditions;
• Geographical location of the enterprise;
• Level of competition in the market;
• Features of the political situation in the country.

In many situations, the profitability and profitability of an enterprise is influenced by its geographic location, proximity to sources of raw materials or consumer clients. The situation on the stock market and exchange rate fluctuations have a huge impact.

Endogenous or internal production factors that greatly influence profitability:

• Good working conditions for personnel of any level (which necessarily has a positive effect on product quality);
• Efficiency of the company's logistics and marketing policy;
• General financial and management policies of management.

Taking into account such subtleties helps an experienced economist make the level of profitability as accurate and realistic as possible.

Factor analysis of enterprise profitability

To determine the degree of influence of any factors on the level of profitability of the entire project, economists conduct special factor analysis. It helps to determine the exact amount of income received under the influence of internal factors, and is expressed by simple formulas:

Profitability = (Profit from sales of products / Cost of products) * 100%

Profitability = ((Product price - Product cost) / Product cost)) * 100%

Typically, when conducting such financial analysis, a three-factor or five-factor model is used. Quantity refers to the number of factors used in the counting process:

• For the three-factor factor, the profitability of manufactured products, the indicator of capital intensity and turnover of fixed assets are taken;
• For the five-factor it is necessary to take into account labor and material intensity, depreciation, and turnover of all types of capital.

Factor calculation is based on the division of all formulas and indicators into quantitative and qualitative, which help to study the development of the company from different angles. It shows a certain relationship: the higher the profit and capital productivity from the production assets of an enterprise, the higher its profitability. It shows the manager the relationship between standards and business results.

Types of profitability

In various production areas or types of business, specific indicators of enterprise profitability are used. Economists identify three significant groups that are used almost everywhere:

1. Profitability of products or services: the basis is the ratio of the net profit received from the project (or direction in production) and the costs spent on it. It can be calculated both for the whole enterprise and for one specific product;
2. Profitability of the entire enterprise: this group includes many indicators that help characterize the entire enterprise as a whole. It is used to analyze a working project by potential investors or owners;
3. Return on assets: a fairly large group of various indicators that show the entrepreneur the feasibility and completeness of using a certain resource. They allow you to determine the rationality of using loans, your own financial investments or other important assets.

Analysis of the profitability of an enterprise should be carried out not only for internal needs: this is an important stage before large investment projects. It may be requested when providing a loan, or it may become the starting point for enlarging or reducing production.

A real complete picture of the state of affairs at the enterprise can be obtained by calculating and analyzing several indicators. This will allow you to see the situation from different angles and understand the reason for the decrease (or increase) in expenses for any items. To do this, you may need several coefficients, each of which will reflect a specific resource:

1. ROA – return on assets;
2. ROM – level of product profitability;
3. ROS – return on sales;
4. ROFA – return on fixed assets;
5. ROL – personnel profitability;
6. ROIC – return on investment in an enterprise;
7. ROE – return on equity.

These are just a small number of the most common odds. To calculate them, it is enough to have figures from open sources - the balance sheet and its annexes, current sales reports. If an estimated assessment of the profitability of a business for launch is needed, the data is taken from a marketing analysis of the market for similar products or services, from competitors’ reports available in a general overview.

Calculation of enterprise profitability

The largest and most general indicator is the level of profitability of the enterprise. To calculate it, only accounting and statistical documentation for a certain period is used. In a more simplified version, the formula for enterprise profitability looks like this:

P= BP/SA*100%

• P is the main profitability of the enterprise;
• BP is an indicator of balance sheet profit. It is equal to the difference between revenue received and cost (including organizational and management costs), but before taxes are subtracted;
• CA is the total cost of all current and non-current assets, production facilities and resources. It is taken from the balance sheet and its annexes.

For the calculation, you will need the average annual cost of all tangible assets, the depreciation of which is used in the formation of the selling price for services or goods.

If the assessment of the enterprise's profitability is low, then certain management measures should be taken to improve the situation. It may be necessary to adjust production costs, reconsider management methods or rationalize the use of resources.

How to calculate return on assets

A complete analysis of an enterprise's profitability indicators is impossible without calculating the efficiency of using various assets. This is the next important stage, which helps to assess how fully all assets are used and understand their impact on profit. When assessing this indicator, pay attention to its level. A low value indicates that capital and other assets are not performing sufficiently, while a high value confirms the correct management tactics.

In practice, the return on assets (ROA) indicator for an economist means the amount of money that falls on one unit of assets. In simple words, it shows the financial return of a business project. Calculation for all types of assets must be carried out regularly. This will help in a timely manner to identify an object that does not bring return or benefit in order to sell it, lease it or modernize it.

In economic sources, the formula for calculating return on assets looks like:

• P – profit for the entire analyzed period;
• A is the average value by type of asset for the same time.

This coefficient is one of the three most revealing and informative for a manager. A value less than zero indicates that the enterprise is operating at a loss.

Return on fixed assets

When calculating assets, the profitability ratio of fixed assets is separately identified. These include various means of labor that are directly or indirectly involved in the production process without changing the original form. The period of their use must exceed a year, and the amount of depreciation is included in the cost of services or products. Such basic means include:

• Any buildings and structures in which workshops, offices, laboratories or warehouses are located;
• Equipment;
• Heavy duty vehicles and loaders;
• Office and work furniture;
• Passenger cars and passenger transport;
• Expensive tool.

Calculating the profitability of fixed assets will show managers how effective the economic activity of a business project is and is determined by the formula:

R = (PR/OS) * 100%

• PE – net profit for a certain period;
• OS – cost of fixed assets.

This economic indicator is very important for commercial manufacturing enterprises. It gives an idea of ​​the share of profit that falls on one ruble of invested fixed assets.

The coefficient directly depends on profitability and should not be less than zero: this means that the company is operating at losses and is using its fixed assets irrationally.

Profitability of products sold

This indicator is no less important for determining the level of profitability and success of the company. In international economic practice, it is designated as ROM and is calculated using the formula:

ROM=Net profit/cost

The resulting coefficient helps determine the efficiency of sales of manufactured products. In fact, this is the ratio of sales income and costs of its production, packaging and sale. For an economist, the indicator clearly demonstrates how much each ruble spent will bring in percentage terms.

The algorithm for calculating the profitability of products sold may be more understandable for beginners:

1. The period in which it is necessary to analyze the indicator is determined (from a month to a whole year);
2. The total amount of profit from sales is calculated by adding up all income from the sale of services, products or goods;
3. Net profit is determined (according to the balance sheet);
4. The indicator is calculated using the above formula.

A good analysis will include a comparison of profitability of products sold over several periods. This will help determine the decline or increase in the company’s income over time. In any case, you can conduct a more in-depth review of each supplier, group of products or assortment, and work through the customer base.

Return on sales

Margin or return on sales is another important consideration when pricing a product or service. It shows what percentage of total revenue comes from the profit of the enterprise.

There is a formula that helps calculate this type of indicator:

ROS= (Profit / Revenue) x 100%

As a basis for calculation, different types of profit can be used. Values ​​are specific and vary depending on the product range, company activity and other factors.

Sometimes experts call return on sales the rate of profitability. This is due to the ability to show the share of profit in total sales revenue. It is also calculated over time to track changes over several periods.

In the short term, a more interesting picture can be given by operating profitability of sales, which can be easily calculated using the formula:

Operating return on sales = (Profit before tax / Revenue) x 100%

All indicators for calculations in this formula are taken from the “Profit and Loss Statement”, which is attached to the balance sheet. The new indicator helps the entrepreneur understand what real share of revenue is contained in each monetary unit of his revenue after paying all taxes and fees.

Such indicators can be calculated for a small enterprise, one department or an entire industry, depending on the task at hand. The higher the value of this economic coefficient, the better the enterprise performs and the more profit its owner receives.

This is one of the most informative indicators that helps determine how profitable a business project is. Without calculating it, it is impossible to draw up a business plan, track costs over time, or assess the profitability of the enterprise as a whole. It can be calculated using the formula:

R=VP/V, Where:

• VP – gross profit (calculated as the difference between the revenue received from the sale of goods or services and the cost);
• B – proceeds from the sale.

The formula often uses a net profit indicator, which better reflects the state of affairs at the enterprise. The amount can be taken from the balance sheet appendix.

Net profit no longer includes income tax, various selling and overhead expenses. It includes current operating costs, various penalties and paid loans. To determine it, the total revenue that was received from the sale of services or goods (including discounts) is calculated. All expenses of the enterprise are deducted from it.

It is necessary to carefully select the time period depending on the task of financial analysis. To determine the results of internal control, the calculation of profitability is carried out over time regularly (monthly or quarterly). If the goal is to obtain an investment or loan, a longer period is taken for comparison.

Obtaining the profitability ratio provides a lot of information for the management personnel of the enterprise:

• Shows the correspondence between actual and planned results, helps assess business performance;
• Allows you to conduct a comparative analysis with the results of other competing companies in the market.

If the indicator is low, the entrepreneur needs to think about improving it. This can be achieved by increasing the amount of revenue received. An alternative is to increase sales, raise prices slightly, or optimize costs. You should start with small innovations, observing the dynamics of changes in the coefficient.

Personnel profitability

One interesting relative indicator is personnel profitability. Almost all enterprises, regardless of their form of ownership, have long taken into account the importance of effective labor management. They influence all areas of production. To do this, it is necessary to monitor the number of personnel, their level of training and skill, and improve the qualifications of individual employees.

The profitability of personnel can be determined using the formula:

• PE – net profit of the enterprise for a certain period of time;
• CH – number of employees at different levels.

In addition to this formula, experienced economists use more informative ones:

1. Calculate the ratio of all personnel costs to net profit;
2. The personal profitability of one employee, which is determined by dividing the costs associated with him by the share of profit brought to the enterprise budget.

Such a complete and detailed calculation will help determine labor productivity. Based on it, you can carry out a kind of diagnostics of jobs that may be reduced or need to be expanded.

Do not forget that the profitability of personnel may be affected by low-quality or old equipment, its downtime or other factors. This can reduce performance and incur additional costs.

One of the unpleasant, but sometimes necessary methods is often reducing the number of employees. Economists must calculate the profitability for each type of personnel in order to highlight the weakest and most vulnerable areas.

For small enterprises, regular calculation of this coefficient is necessary in order to adjust and optimize their expenses. With a small team, it is easier to carry out calculations, so the result can be more complete and accurate.

Profitability threshold

For many trading and manufacturing enterprises, calculating the profitability threshold is of great importance. It means the minimum volume of sales (or sales of finished products), at which the revenue received will cover all costs of production and delivery to the consumer, but without taking into account profit. In fact, the profitability threshold helps the entrepreneur determine the number of sales at which the enterprise will operate without losses (but will not make a profit).

In many economic sources, this important indicator can be found under the name “break-even point” or “critical point”. It means that the enterprise will receive income only if it overcomes this threshold and increases the coefficient. It is necessary to sell goods in quantities that exceed the volume obtained according to the formula:

• PR – threshold (norm) of profitability;
• FZ – fixed costs for sales and production;
• Kvm – gross margin coefficient.

The last indicator is pre-calculated using the formula:

Kvm=(V – Zpr)*100%

• B – enterprise revenue;
• Zpr – the sum of all variable costs.

The main factors influencing the profitability threshold ratio:

• Product price per unit;
• Variable and fixed costs at all stages of production and sale of this product (service).

With the slightest fluctuation in the values ​​of these economic factors, the value of the indicator also changes up or down. Of particular importance is the analysis of all expenses, which economists divide into fixed and variable. The first include:

• Depreciation for fixed assets and equipment;
• Rent;
• All utility costs and payments;
• Salaries of enterprise management employees;
• Administrative costs for their maintenance.

They are easier to analyze and control, and can be monitored over time. Variable costs become more “unpredictable”:

• Wages of the entire workforce of the enterprise;
• Fees for servicing accounts, loans or transfers;
• Costs for the purchase of raw materials and components (especially when exchange rates fluctuate);
• Payment for energy resources spent on production;
• Fare.

If a company wants to remain consistently profitable, its management must control the rate of profitability and analyze expenses for all items.

Any enterprise strives to develop and increase capacity, open new areas of activity. Investment projects also require detailed analysis, which helps determine their effectiveness and adjust investments. In domestic practice, several basic calculation methods are more often used, giving an idea of ​​what the profitability of a project is:

1. Methodology for calculating net present value: it helps determine the net profit from a new project;
2. Methodology for calculating the profitability index: necessary to generate income per unit of cost;
3. Method for calculating marginal efficiency of capital (internal rate of return). It is used to determine the maximum possible level of capital expenditure for a new project. The internal rate of return is most often calculated using the formula:

INR = (current net worth / current initial investment amount) * 100%

Most often, such calculations are used by economists for certain purposes:

• If necessary, determine the level of expenses in the case of developing a project using raised funds, loans or credits;
• To prove cost-effectiveness and document the benefits of the project.

If there are bank loans, calculating the internal rate of return will give the maximum allowable interest rate. Exceeding it in real work will mean that the new enterprise or direction will be unprofitable.

1. Methodology for calculating the return on investment;
2. A more accurate modified method for calculating the internal rate of return, for the calculation of which the weighted average cost of the advanced capital or investment is taken;
3. An accounting rate of return technique that is used for short-term projects. In this case, profitability will be calculated using the formula:

RP=(PE + depreciation/amount of investment in the project) * 100%

PE – net profit from a new business project.

A full calculation in various ways is done not only before developing a business plan, but also during the operation of the facility. This is a necessary set of formulas that owners and potential investors use when trying to assess the possible benefits.

Ways to increase enterprise profitability

Sometimes the analysis produces results that require serious management decisions. To determine how to increase profitability, it is necessary to understand the reasons for its fluctuations. To do this, the indicator for the reporting and previous periods is studied. Typically, the base year is the past year or quarter, in which there was high and stable revenue. What follows is a comparison of the two coefficients over time.

The profitability indicator may be affected by changes in selling prices or production costs, increases in costs or the cost of raw materials from suppliers. Therefore, it is necessary to pay attention to factors such as seasonal fluctuations in the demand of product buyers, activity, breakdowns or downtime. When solving the problem of how to increase profitability and profitability, it is necessary to use various ways to increase profits:

1. Improve the quality of products or services and their packaging. This can be achieved by modernizing and re-equipping its production facilities. This may require serious investments at first, but in the future it will more than pay off in resource savings, a reduction in the amount of raw materials, or a more affordable price for the consumer. You can consider the option;
2. Improve the properties of your products, which will help attract new consumers and become a more competitive company in the market;
3. Develop a new active marketing policy for your business project and attract good management personnel. Large enterprises often have an entire marketing department that deals with market analysis, new promotions, and finding a profitable niche;
4. Various ways to reduce costs in order to compete with a similar range. This should not come at the expense of the quality of the product!

The manager needs to find a certain balance among all the methods in order to achieve a lasting positive result and maintain the enterprise’s profitability indicators at the proper level.

In most developed countries of the world, small and medium-sized businesses form the basis of the economy. And it’s not surprising, because with minimal costs, a private entrepreneur can make significant profits. But, of course, success largely depends on the area in which you want (and can) work - services, manufacturing, transport, trade, etc.

So who earns the most? Forbes magazine tried to answer this question by compiling a list of the most profitable and promising small business segments. The rating is based on data on 300 thousand companies and individual entrepreneurs, each area was represented by at least 100 companies. The data was collected by a specialized consulting agency from 2003 to 2011.

As the authors of the rating note, most of the most profitable types of entrepreneurship require excellent professional training. At the same time, these specialties allow you to work for yourself, not have a staff, and sometimes not even use an office. But there is another side to the coin: clients of such specialists, as a rule, resort to the services of the same professional for many years, that is, it is very difficult for a beginner to quickly take a worthy position in the market.

So, who made it to the business top?

1. Private auditors. Net profit - 16.5%. Audit services are in demand at any time, so the financial crisis did not in any way affect the income of these specialists. In addition, clients tend to regularly work with the same auditor (or firm), so promotional costs are virtually unnecessary. And, of course, if you work for yourself, the need to rent an office and pay staff completely disappears.

2. Chiropractors, 15.3%. Official medicine does not always recognize the craft of these specialists, but this does not prevent them from receiving a decent income. And those who do not maintain their own office and work on-site at the client’s home, also have almost no costs.

3. Specialized clinics, 15%. The most popular are minor surgeries, cosmetic procedures and various examinations. Despite the high cost of running such an establishment, the prices for services more than cover all costs.

4. Accounting services, 14.9%. Just like auditors, everyone always needs accountants. Any services of these specialists are quite expensive, however, competition in this area is consistently high.

5. Private dentists, 14.7%. These doctors almost never suffer from a lack of clients. Many patients become regulars and go to the same dentist for decades; plus, they recommend the specialist they like to friends, relatives, colleagues, and so on. Even without a single advertising line and having quite expensive equipment, a dental office is a profitable enterprise.

6. Tax calculations, 14.7%. Nobody likes filling out declarations and standing in line at the tax office. Private tax officials make money from human laziness.

7. Orthodontist, 14.4%. In Russia, these specialists usually do not work outside the walls of any clinics, but in America, a private orthodontist is a fairly common occurrence. And the services of such doctors are traditionally expensive: if a client wants a Hollywood smile, he must be willing to pay the appropriate price for it.

8. Law firms, 13.4%. The approximate income of all law firms and small businesses is at this same level.

9. Small lending, 13.3%. Companies that issue small loans secured by the company's products have become popular during the crisis. Large banks unanimously refused loans to entrepreneurs and demanded that previously issued loans be repaid ahead of schedule, and these firms were ready to issue funds without special requirements and for the required period. For small businesses, this became a real lifesaver, as profits in production and trade also began to fall rapidly.

10. Private managers, 12.2%. The financial management service is not very popular in our country, but in the West people trust traders much more than banks or their own “mattress”. Even pensioners invest their savings in securities, so managers have a lot of clients, but there are almost no expenses: such a specialist can work even from his own sofa.

11. Drilling of oil and gas wells, 12%.

12. Ophthalmologists, specialists in the selection of glasses, 11.5%.

13. Renting of non-residential premises, 11.3%.

14. Real estate valuation, 11.3%.

15. Renting mini-warehouses and storage rooms, 11%.

16. Insurance agencies, 11%.

17. Credit intermediaries, 10.7%.

18. Investment advisors, 10.7%.

19. Speech therapists and audiologists, 10.6%.

20. Private therapists, 10.4%.

The most important goal of any commercial activity is the most productive use of funds and resources initially invested in the business or attracted during the work process. It is obvious that businessmen and investors are primarily interested in enterprises that receive more profit in proportion to the capital employed: in order to present this quality in understandable numerical terms, it is necessary to calculate profitability.

In simple words, profitability is a conditional criterion that helps determine the effectiveness of managing the resources invested in an enterprise, the return on costs associated with the manufacture and sale of products. Calculating profitability seems to be one of the main operations preceding investing in a particular company, modernizing production, improving staff qualifications and other measures that increase the costs of business owners.

What is profitability?

Analysts consider profitability indicators as parameters that allow them to assess the performance of business activities with a certain degree of reliability. In simple words, profitability is a formula that visually represents the productivity of using such enterprise resources in business as:

• Material and technical base;
• Possibilities of the workforce;
• Organization of supplies of raw materials;
• Organization of sales channels;
• Enterprise financial management;
• Other material and intangible resources.

Comparing profits, sales volumes and other physical indicators for companies with different sizes or specializations is somewhat incorrect: a small enterprise in some situations can be much more efficient than a giant concern with billions in turnover. Using profitability indicators, this comparison becomes more fair, since such coefficients are calculated in relative terms.

In simple terms, profitability is an example that symbolizes the return on business and demonstrates the amount of income generated for every ruble invested in a business. From an economic point of view, here you can see well-known analogies with efficiency: in the general case, the indicator is calculated as the ratio of the amount of profit to the sum of all production and non-production costs for a specified period of time. Accordingly, profitability is the proportion between a company's income and expenses.

The formula used to calculate the coefficient is quite primitive, but the obtained values ​​cannot be assessed in absolute terms. Here it is necessary to analyze the dynamics, comparing performance indicators for different periods, different external and internal conditions. Sometimes an initially promising business turns into an unprofitable one precisely due to the incorrect use of calculated values ​​to determine critical production and sales volumes.

Why do you need to determine profitability?

In what situations can this indicator be useful:

1. Drawing up a business plan. Thanks to the calculation of profitability, it is possible to draw conclusions about the quality of elaboration of all the details of the business plan and the feasibility of implementing this project;
2. Pricing. Using profitability indicators, businessmen determine the acceptable reduction in prices for products, with the goal of conquering the market or gaining competitive advantages;
3. Management. By analyzing the profitability indicators of an enterprise at different time intervals, it is possible to identify problems in the organization of business processes;
4. Income forecasting. Knowing the average profitability allows the manager to fairly accurately predict the profit of future periods;
5. Justification of the need for investment. Taking into account the amount of investment and the average profitability of a small business, investors determine the effectiveness and feasibility of the investment;
6. Determination of enterprise value. The level of profitability, combined with liquidity, determines the company's value when selling a business.

In addition, it is necessary to calculate business profitability indicators to conduct a comparative analysis with the efficiency of competitors, when attracting debt financing, before implementing any projects or mastering the production of a new type of product.

Types of profitability

A businessman who wants to get an adequate idea of ​​the current state of the enterprise must use several different profitability indicators. Thanks to their analysis, it is possible to comprehensively consider the situation, identify problem areas or business processes, and evaluate the effectiveness of using all available resources.

The following coefficients are most often calculated:

1. Sales profitability;
2. Profitability of production;
3. Profitability of certain types of products;
4. Return on assets of the enterprise;
5. Return on investment;
6. Return on equity;
7. Profitability of fixed assets;
8. Personnel profitability.

To obtain these indicators, you do not need to carry out special activities or research - all source data can be found in ordinary accounting documents. When calculating the profitability of a newly created business, statistics for a given market segment and reports published by competitors in the public domain are used.

Return on Sales (ROS)

Return on sales is the ratio of income received from the sale of all goods or services to the company's total revenue. In this way, you can determine the share of profit that falls on each ruble earned by an entrepreneur.

This coefficient is used in the pricing process and in assessing the total costs of the enterprise. However, to get an idea of ​​a company's performance, it is necessary to compare ROS with those of organizations operating in the same industry and producing similar products. You can calculate the profitability of a business in sales as follows:

ROS = (profit before tax / sales revenue) x 100%.

Sometimes, for a more accurate analysis, calculations use the amount of net profit, which is the final income of the enterprise minus all costs, as well as tax and loan payments.

Production profitability

Production profitability is calculated both for the company as a whole and for its individual divisions. This is how they determine the feasibility of conducting activities in one direction or another, especially if the enterprise operates simultaneously in several areas. Calculating the profitability of a manufacturing business looks like this:

RP = (profit / (cost of fixed assets + amount of working capital)) x 100%.

Return on Product (ROM)

This coefficient is defined as the ratio of income received from the sale of products to the total costs of its production and sale. This way you can estimate the share of profit that falls on each ruble invested in the cost of the product. ROM is a fairly flexible indicator that allows you to justify the feasibility of producing both the entire range of goods and individual groups, as well as specific types of products. How to determine the profitability of a particular type of product:

ROM = (profit from product sales / product cost) x 100%.

Return on assets (ROA)

This indicator clearly demonstrates the productivity of using the company’s assets to generate profit, the effectiveness of the strategy for managing the assets owned by the enterprise, and the return on investment of a business that uses its own resources. When calculating ROA, it is necessary to take into account all current and non-current assets available to the organization or attracted by it in the process of conducting business. The formula for calculating business profitability in terms of the efficiency of using enterprise resources looks like this: ROA = (net profit / average asset value for the period) x 100%.

By regularly calculating this ratio, you can identify a non-profit-making asset and make a decision on its sale, modernization or lease.

Return on Investment (ROI)

Return on investment is the ratio of the income received during the investment process to the amount of initially invested capital. In this way, you can quite accurately determine the profit that each ruble invested in the enterprise brings. How to calculate business profitability in terms of the efficiency of using attracted investments:

ROI = (net profit + (asset sale price - asset purchase price) / asset purchase price) x 100%.

If, due to the incompleteness of the project, the final price of the asset is unknown, then when calculating, you need to take an indicator equal to its value at the beginning of the investment. An ROI greater than zero indicates the appropriateness of capital allocation, while negative values ​​indicate impending losses.

Return on equity (ROE)

The ROE ratio is defined as the ratio of a company's net profit to its equity capital. This indicator helps investors evaluate the productivity of using the company's funds and the correctness of the strategy for managing its resources. How to calculate business profitability in terms of efficiency in attracting equity capital:

ROE = (net profit for the year / equity) x 100%.

When deciding on debt financing for an organization, this ratio must be compared with the rate on a bank loan. If ROE is higher, then lending can be considered appropriate and economically justified. Otherwise, in order to avoid losses, it is better to refuse to raise funds.

Return on fixed assets (ROFA)

Calculation of the profitability ratio of fixed assets is aimed at assessing the productivity of their use in the economic activity of the enterprise. Fixed assets are considered to be all objects directly or indirectly involved in the manufacturing process of products that do not change their original form. In other words, these include:

• Industrial and warehouse buildings and structures;
• Machine tools, equipment and units;
• Trucks and loading equipment;
• Passenger cars and vehicles for transporting passengers;
• Office furniture and office equipment;
• Expensive devices and tools.

ROFA = (net profit / cost of fixed assets) x 100%.

Return on Personnel (ROL)

Personnel profitability is the ratio of net profit received for a certain period to the total number of employees working at the enterprise at that time. In this way, the optimal staffing of the organization is determined, allowing it to obtain maximum income at minimum costs.

This business profitability indicator can be calculated as follows:

ROL = (net profit / number of employees in the enterprise).

Along with this indicator, economists often calculate other, more informative profitability ratios:

• The ratio of employee maintenance costs to company profits;
• The ratio of the costs of maintaining any division or branch to the profit received by them;
• The personal profitability of an employee is the ratio of expenses associated with him to the income brought by the specialist to the enterprise budget.

Thus, ROL allows you to achieve the highest productivity by identifying departments and branches that need to be reduced or expanded.

Break-even point calculation

Explaining in simple words what the profitability of an enterprise is, one cannot fail to mention such an important parameter for business as the break-even point. It indicates the minimum volume of sales that is necessary to cover all costs associated with the production and marketing of products. In other words, the coefficient helps a businessman calculate the level of sales at which the enterprise will operate “at zero”, without profit, but also without losses.

The break-even point in some sources is called the profitability threshold, or break-even point (BEP). To determine the lower limit of sales volume, after overcoming which the business will begin to generate income, use the following formula:

BEP = (fixed costs) x (revenue) / (revenue) – (variable costs).

Thus, the profitability threshold is directly affected by the cost of a unit of goods, as well as fixed and variable costs at all stages of manufacturing and marketing of products. When these parameters change, the value of the coefficient immediately changes: in particular, an increase in BEP indicates problems in the process of making a profit or indicates an increase in production costs.

In addition, calculating the break-even point allows you to:

1. Assess the safety margin of the business;
2. Identify problems with the organization of business processes;
3. Determine the feasibility of investing in a project that is expected to pay off only in the next period;
4. Calculate prices when sales volume increases or decreases;
5. Determine the acceptable threshold for reducing revenue without the risk of losses.

Factors Affecting Profitability

Obviously, any entrepreneur is interested in creating a business with high profitability. However, simply calculating the main coefficients is not enough to solve this problem, since the value of each indicator is influenced by many external and internal factors.

The first include:

1. Geographical location. Regional characteristics have a significant impact on the pricing policy of the enterprise, and its distance from suppliers and consumers determines the volume of transport and storage costs;
2. Level of competition. The markup on products and the profit of the enterprise depend on the activity of competitors and the need to combat dumping;
3. Market conditions. To a certain extent, the cost of a product is determined by the general state of affairs in the industry, the purchasing power of customers and the general level of demand for a given type of product;
4. Tax policy. Obviously, the amount of tax deductions directly affects the company's net profit;
5. Political situation. Due to the influence of political factors, prices for imported raw materials change, foreign markets open or close;
6. Tariffs of counterparties. The amount of overhead costs depends on the cost of services provided to the enterprise by contractors;
7. Prices of raw material suppliers. Also, the cost of a product is determined by the prices of suppliers of raw materials and materials necessary for its production.

Among the internal factors that determine the profitability of business in Russia, a distinction is made between production and non-production.

The non-production category primarily includes:

1. Logistics efficiency. The entrepreneur's expenses depend on the correctness and efficiency of organizing the processes for delivering raw materials and finished products;
2. Marketing effectiveness. The cost of attracting one client depends on the method of advertising and the quality of advertising materials;
3. Environmental protection measures. The company's expenses may increase if it is necessary to take measures to neutralize or prevent the impact of production on the environment;
4. Working conditions. By providing employees with the necessary infrastructure, labor productivity increases, which leads to a reduction in costs;
5. Financial policy of the enterprise. The company's profit partly depends on the size of the markup on goods, raw materials or services, as well as on the availability of discounts and promotions;
6. Business reputation of the company. Supplier and customer loyalty definitely impacts a business's bottom line.

Finally, we should consider the production factors on which the profitability of small businesses in Russia largely depends:

• Volume of trade turnover. By increasing sales volume while maintaining a constant markup, the company can make more profit;
• Structure of trade turnover. The introduction of new items into the assortment leads to an increase in the number of customers by expanding the target audience, and improving the quality of the product allows you to set a higher markup;
• Organization of the sales process. To increase sales volume, it is also recommended to use the most progressive and modern marketing methods;
• Quantitative and qualitative personnel composition. Growth in production capacity depends on the availability of a sufficient number of skilled workers;
• Labor productivity. With an increase in labor productivity, the share of overhead costs per unit of production decreases;
• State of the material and technical base. A company with modern equipment can increase its turnover. At the same time, the wear and tear of fixed assets prevents this process.

How to increase profitability?

High profitability is a significant competitive advantage in today's market. Of course, an entrepreneur must pay attention to all factors that directly or indirectly affect the value of this indicator, including seasonal fluctuations in demand, the amount of production costs, the activities of competitors, changes in the share of defects in the total output, returns and forced downtime of the production line caused by various reasons. Listing the most common technologies used to solve the problem of increasing profitability, it should be mentioned:

• Artificial increase in profitability. When planning to increase selling prices, you need to take into account both the general situation on the market and the competitiveness of the product;
• Increased production capacity. Modernizing equipment or purchasing new automatic machines will increase production capacity and save on labor resources;
• Improving product quality. Also, modernization of technological lines can lead to an increase in the quality of the product and an increase in demand for it;
• Improving marketing strategy. A significant expansion of the target audience is achieved by choosing the most effective methods of promotion;
• Cost reduction. An enterprise must constantly look for suppliers who are willing to offer raw materials, materials and services of similar quality at a lower price. Obviously, this will lead to lower costs;
• Reduced payroll costs. Large companies do not reduce their staff, but transfer it to other regions and countries where inexpensive labor can be found.

The most profitable types of business

When compiling a rating of business profitability in Russia 2018, you need to understand that different indicators are considered normal in different industries. High ratios are not necessarily characteristic of the most profitable types of activities: sometimes only thanks to increased profitability a company can compensate for its risks. So, in the field of industrial production, the average indicators are as follows:

• Operation of transport systems for oil and gas - 90%;
• Cement production - 85%;
• Production of agricultural fertilizers - 85%;
• Non-ferrous metallurgy - 65%;
• Rolled metal production - 40%.

In the field of finance and banking services, the list of types of businesses with high profitability in 2018 includes:

• Clearing services - 70%;
• Brokerage services in financial markets - 60%;
• Maintaining securities registers - 45%.

Finally, in the sphere of production of goods for the population, the following look attractive:

• Production of tobacco products - 45%;
• Beer production - 30%;
• Production of household appliances - 25%.

How do you know in which business high profitability is an integral characteristic of the activity? Typically, such indicators are typical for niches in which the acceptable markup on a product is hundreds and thousands of percent. This is possible given the simultaneous presence of increased demand and low levels of competition.

Theoretically, a high markup is achievable in any business: to achieve this, one should produce or sell piece or designer goods that claim exclusivity. However, some types of products are considered high-margin due to objective reasons: with a low cost, they are extremely in demand among customers.

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What types of businesses fit this description:

• Sale of underwear. Sellers add 250–300% to the cost of goods in the mid-price segment. When selling designer and exclusive lingerie, the markup increases to 1000–1200%;
• Selling glasses. The markup on regular glasses is 300%, while frames and sunglasses are sold with a margin of up to 500%;
• Selling cotton candy. Among other types of fast food, cotton candy is characterized by the highest markup, sometimes reaching 4000%;
• Selling popcorn. The average markup on regular popcorn is 600%. When adding flavoring fillers, it increases to 1000%;
• Sale of jewelry. Mass models are sold at a 300% markup. Designer jewelry and handmade goods bring a businessman up to 1000% profit;
• Coffee house. Coffee is usually sold at a 400% markup. By adding desserts, sales profitability can increase by up to 600%;
• Sale of wedding goods. They don’t skimp on wedding goods, which is what traders take advantage of, selling them at a markup of 350–500%;
• Sale of khinkali. To prepare the dish, they use affordable, inexpensive ingredients, so the markup reaches 300%;
• Flower shop. Usually flowers are sold with a markup of 200–250%, and on holidays they increase it to 600–800%;
• Selling ice cream. The average margin when selling ice cream is 250%. Points in shopping centers sometimes increase it to 600–800%;
• Pancake house. The ingredients for preparing the dish are also inexpensive, which allows you to set a markup of up to 300%;
• Smoothie bar. Fruit and vegetable drinks are positioned as elements of a healthy diet, so the markup on them reaches 1000%.

Conclusion

When calculating profitability indicators, it is necessary to understand that they do not always represent full-fledged characteristics of the enterprise. Thus, with long-term investing, the values ​​of the coefficients turn out to be low, so they need to be calculated for different periods and different conditions. In addition, assets usually change their value over time: accordingly, a calculation made on the basis of one-time measured parameters may turn out to be incorrect.

Finally, a single profitability ratio does not allow us to fully assess the risks accompanying the activities of a particular enterprise. To get an adequate idea of ​​the company's performance, in addition to this tool, you need to use other analysis methods - for example, calculating financial stability, studying the cost structure, analyzing management efficiency and much more.

This publication outlines the basic approaches and principles, on the same page you can calculate the estimated income, expenses, profitability and payback period of your business. Turnover and tax expenses are also automatically calculated.

In order to obtain data, enter the parameters of your idea in the appropriate fields of the form and click the "Calculate" button.

Note: Of course, this calculator only gives you a general idea of ​​the profitability of your idea and whether it is worth pursuing. After all, calculating specific indicators (sales, average bill, etc.) is still your responsibility.

The role of this online program is to help, firstly, systematize the confusion in the head of a novice entrepreneur and give him guidelines. Show exactly what is worth thinking about and what needs to be taken into account. This is more important than it seems.

Secondly, the calculator helps you avoid boring monotonous work with counting dozens of different ratios of business components. By changing input parameters (for example, cutting costs), you can quickly refine your idea without having to do all the calculations again, with the click of a button.

Many people constantly need a product that tends to run out. No, the buyers themselves, of course, dream of extending the life of their purchase as long as possible.

But a perpetual motion machine has not yet been created, so when you run out of medicine/shampoo/product, etc., you have to buy a new one. And a budding entrepreneur should take advantage of this. Therefore, let’s look at some of the best options that best meet the requirement mentioned above.

People in Russia, no matter how bitter the truth may sound, have been sick, are sick and will continue to be sick. There is no other pill for all ailments, which is why there is such a rich assortment on pharmacy shelves. You can’t build happiness on someone else’s grief, but a pharmacy is a very profitable business with investments, and such a business is worth taking a closer look at.

You just need to take into account the location and basic needs of the population in the area.

For example, the demand will be huge in those places where the nearest medicine store is several kilometers away. And we ourselves know that sometimes a tablet of the same painkiller is needed immediately.

Accordingly, if a given area is predominantly inhabited by families with children, the proposal should be consistent with their requests. This includes baby formula, various bottles, and pacifiers with diapers. Keep in mind that the activities of pharmacies are subject to licensing, and the license is issued for a specific premises. And this is a business that is not afraid of a crisis.

Pharmacies have a big advantage - scalability. Having opened 1 small one today, in the future it will not be difficult to open 1,2,3 more in your city or a couple in the neighboring one.

You can open a pharmacy either on your own or, with the second option, the income will be less, but its implementation is much simpler, since the franchisor gives everything you need and teaches you the intricacies and nuances of the business.

2. Medical center

In order not to stray too far from the topic of medications, the second option is to consider opening a medical center. Difficult? Yes, this is not the easiest business idea to implement.

But remember government institutions: most visitors equate them to one of the branches of hell. Why not show those in need of medical care a new format of service? There are no queues, all doctors are extremely correct and professional.

Naturally, the key to success will be choosing a suitable location. Third in a row on the same street honey. the center will clearly be superfluous. But it’s not worth opening it even on the outskirts of the city. You will have to think about a convenient place in advance.

In particular, attention should be paid to transport and walking distance.

3. Funeral services

Even the best medical center does not guarantee immortality. And in the near future, until scientists find the secret of eternal youth, ritual services will be in demand.

The niche is very well developed and filled, but high quality and low prices will set your small business project apart from competitors. This is a promising business, as there are more and more people, and accordingly more people die. Death is usually not expected by anyone, so the funeral process itself can hit the budget.

Offer your customers installment plans, discounts, and then the profit will become constant and stable.

4. Car service

Moving away from the sad topic, let's remember about car owners. Many of them simply dote on their vehicles, choosing the best for their four-wheeled friend. It’s worth taking advantage of this and opening a car service center. You should attract customers not only with reasonable prices, but also with good quality and speed of work. A simple business worth starting for a beginner. To start, you need to rent 2 boxes and hire 2 car mechanics.

Important point: It’s better to pay them a percentage of the revenue, usually it’s 50-50, but you can negotiate 60% for yourself, 40 for the master.

5. Car wash

This point could be attributed to the previous good business, which can be opened in both a small and a large city, but we will consider it separately. Not everyone who wants to fix a car wants to wash it. And vice versa. It is worth noting that a car wash requires much less investment.

Therefore, if your starting capital does not allow you to immediately create something large-scale, but you definitely want to work with cars, take a closer look at the option.

It's consistently profitable small business with minimal investment. You can start it with only 200,000 - 300,000 rubles ($4,000), provided you rent a garage or box for this business.

6. Clothing store

All stores have one purpose: to sell goods. But in our case, we will consider several points of sale of different directions. So, what clothes are popular these days? One that has good quality and low price. By the way, you can open a clothing store with minimal costs.

For example, it could be a store, stall, pavilion with only men's underwear.

It is desirable that the assortment be presented in both small and large sizes. Also, do not forget about creating several departments at once: for women, men, children. This is a good own business, where the markup on the wholesale price is usually about 300%. Organizing this business is not difficult and no special knowledge is needed.

7. Cosmetics and perfumery store

Cosmetics and perfumes for the fair sex are always a “sweet spot”. To be successful, you should care not only about quality, but also about different price ranges.

8. Grocery store

Yes, yes, we are once again considering the store as a business option. And the grocery point most fully corresponds to what was said at the very beginning: disposable goods are becoming more and more popular.

Choose the good, a suitable location (this is important), open a store, fill the shelves with affordable and excellent quality goods and you can expect a quick payback.

9. Meat and fish store

As in the case of a car wash/car service, we open a meat and fish store separately from the grocery store. Why? Because this way we can offer our customers the richest choice. The entire retail space is dedicated specifically to our meat and fish products. This will allow us to attract buyers and maintain quality at the proper level. This is one that can be opened from scratch.

10. Homemade food store (Natural products)

About 5 years ago there was not one in my city. Now there are already 6 of them. I live in a small town with a population of only 18,000 people. And none of them closed. My friends opened 1 such store 3 years ago. They are doing well and have no plans to close. Products they sell include homemade sour cream, milk, meat, cottage cheese, dumplings, cheese, etc. There is no point in listing the entire assortment, but I will say that it is impressive and the prices are quite high. And even with this picture, there are always clients.

For example. Sour cream for half a kilo costs 250 rubles; regular sour cream in the store is 4 times cheaper. But people buy and are happy.

Another similar store has a large assortment of homemade baked goods: eclairs, various cakes, including Napoleon, a huge number of different dishes and salads, already prepared. There is a demand, people buy because many are too lazy to cook after work.

It is difficult to single out the most profitable business from the above. After all, a lot depends, including on the scale. For example, undoubtedly a meat and fish store of 30 square meters will generate more profit than a pharmacy kiosk of 8 square meters. m. But we’ll try anyway. Based on our experience, the most profitable business today among those listed is pharmacy, medical. center, grocery and clothing store.

The most important choosing the right place, 90% of success for this type of business depends on it.

Before starting your business activity, be sure to draw up a detailed business plan in which you describe everything down to the smallest detail (consider all issues thoroughly). We hope we have answered the question - what kind of business is profitable to do. Good luck to you, dear reader and aspiring businessman!