Any organization in a market economy works for profit. This is her financial result, which characterizes the effectiveness of the company. Profitability and financial stability indicators depend on its value.
Formation and distribution of profits occurs according to a certain pattern. It is established at the legislative level and depends on the characteristics of the organization. To be able to manage the profit indicator, it is necessary to understand the mechanism of its formation, as well as distribution.
General concept
Profit is a financial indicator that is formed as a result of the company. This is part of the revenue that remains at the enterprise after accounting for all costs. In general profit formula looks like that:
P = D - Z, where D - income in the operating period, Z - the costs of the operating period.
If, as a result of calculations, the indicator has a positive value, then the company worked effectively in the period under review. A negative indicator indicates that the organization was unprofitable. In the current period, expenses exceeded revenue. This indicates errors in the planning and management process. In some cases, revenues may be equal to costs. In this case, we can assume that the company break-even.
Formation and distribution of profits is one of the most important indicators of the effectiveness and feasibility of the company. This is the primary goal of the enterprise in a market economy.
At the expense of profit, the organization finances its development. Of these funds, the purchase of new equipment is paid for, scientific development is carried out, etc. In the process of managing the organization, all indicators are optimized so that the amount of profit is maximum.
The presented indicator performs several important functions. It characterizes the economic effect of the enterprise, stimulates all types of activities of the organization. All types of budgets are formed on the basis of profit. This indicator also summarizes the result of the enterprise.
Profit Types
Each company leads accounting for the formation and distribution of profits. To understand the mechanism of its occurrence, to understand the degree of influence of each factor on its formation, there are several types of performance indicators of the company.
First of all, it is worth noting such varieties as the total profit and the indicator after taxes. The second type is also called net profit. The total indicator is called the balance sheet. This is the sum of the financial result of the company received from all types of its activities (production, investment, financial) before distribution and taxation.
After paying all taxes, the company has the amount of funds that it has the right to dispose at its discretion. This is net profit. It is her company that subsequently distributes between the owners or directs it to its further development.
The concepts of operating, gross and marginal profit are also highlighted. Consideration of each indicator allows you to determine the factors constraining the development, plan the effective work of the company in the future period.
The concept of gross profit is used by financial analysts in both foreign and domestic companies. Profit formula gross will be as follows:
VP = V - PZ, where B - sales revenue, PZ - production costs.
Under the indicator of production costs refers to the cost of sales. It is calculated using the partial costing method. In other words, the gross income indicator is formed from the organization’s own profit. For this, administrative and business expenses are deducted from it.
Operating profit is formed by subtracting non-manufacturing costs from the previous indicator. This is the next step in the calculation.
To calculate the marginal profit, analysts subtract variable costs from the amount of sales. This indicator will coincide with gross profit if the company only calculates variable costs.
Formation Methods
The scheme of formation and distribution of profit can be folded in accordance with one of the existing methods. Each of them has its own advantages and disadvantages. When choosing a method, this must be taken into account.
The direct account method involves calculating the profit indicator in accordance with the volume of products and goods sold in the period under review. The advantage of this approach is its high accuracy. The disadvantage is the need to make complex, lengthy calculations. In some cases, it is simply not possible to use it.
The normative method is used to justify economic plans of various sizes. This is also a fairly accurate approach. However, it is advisable to use it only with the stable operation of the enterprise.
The analytical method is suitable for determining the size of profit in the planning period. When applied, the influence of internal and external factors on the performance of the company is analyzed. Internal influences include trends implemented through the volume of finished products, as well as improving its quality. External factors include the reasons for changes in the financial performance of the company, which do not depend on the characteristics of its activities.
Distribution
The process of generating and distributing profits occupies an important place in the financial policy of the organization. It allows you to organize investment activities of the company, to satisfy the economic interests of all owners.
The company receives income from its activities. Of this amount taxes are paid to the state budget funds. This procedure is established at the legislative level. After that, the company generates the amount of net profit. It also needs to be properly distributed.
The mechanism of formation and distribution of enterprise profits involves the division of the received amount of funds (subject to its positive value) into two parts. The first of them is displayed outside the enterprise. This is a distributed profit. Dividends are paid from it, social support is provided, financial interests of owners are satisfied, etc. Also, fines are paid from these funds.
The second part of the financial result remains at the enterprise. She finances the development of the company. This part of the funds is directed to the retained earnings fund. A reserve and investment fund are formed from it. The first of them allows you to compensate for some deviations in the turnover of funds from the set value. It covers a certain part of the need for financial sources. The reserve fund must be formed in cooperatives, business companies, as well as in rental companies.
Profit distribution in LLC
Profit Sharing and Distribution Policy may vary slightly for different financial entities. For each of them, this process is concretized.
For LLC, the distribution procedure involves the mandatory taxation. This procedure is provided by law and applies to legal entities.
Distribution is subject to that part of the profit that remained at the enterprise after paying taxes and settlements with creditors. Before carrying out this procedure, appropriate financial statements for the past period are prepared. Distribution decisions are made by voting.
In some cases, profits cannot be distributed. If the new company has not paid in full its authorized capital, this process cannot be carried out. The legislation established that the distribution process is possible exclusively for enterprises that have fully paid their authorized capital when creating the organization. Also, profit sharing is not possible for bankrupt companies or enterprises that are on the verge of bankruptcy.
Distribution procedure in LLC
If, however, the procedure for dividing profit is allowed for the LLC, it is usually distributed in proportion to the share of each participant in the authorized capital. In some cases, prescribed in the charter of the LLC, the financial result is divided among the owners disproportionately.
Formation and distribution of profits, where the owner is one person, it happens according to a certain pattern. This does not require a meeting. The owner of the LLC in this case takes the decision on his own. This procedure must be documented. The founder confirms his decision with a signature.
Procedure for a joint stock company
Distribution of profit between participants Joint-stock company is the most complex scheme. This mechanism is specified in detail in the charter. It is legally established that such an organization is obliged to form a reserve fund in the amount of 10% of the total amount of the authorized capital.
Since many joint stock companies trade their securities in the stock market, the cost of their capital is constantly changing. If the difference between the nominal and real prices of own assets is significant, the size of the authorized capital must be adjusted. With its increase, part of the net profit goes to these needs.
Holders of preferred shares receive their dividends at specific rates. The owners of ordinary securities vote and set the amount to be distributed between them. This fund, in accordance with the share of each participant, is used to pay dividends on ordinary shares.
If the remuneration of the owners of securities is overstated, the company will not develop. New equipment, technology cycles or research projects will not be funded. If the dividends are too low, the value of the company's shares on the market will fall (as will the cost of equity). This is fraught with negative consequences for the organization.
Production cooperative
Problems of profit formation and distribution production cooperatives are associated with the rarity of this form of organization in our country. This commercial enterprise unites people to carry out economic activities through their joint work. Moreover, the basis for the functioning of such organizations is not the financial contribution of participants. The members of the cooperative contribute their labor to it, not cash. The presence of subsidiary liability in this case does not add to the popularity of cooperatives.
Profits that are distributed among participants are also pre-taxed. Fines, debts and other necessary payments are deducted from it. The rest of the profit is distributed among the members of the cooperative in accordance with their labor or share contribution to the organization. The charter should clearly state this procedure. If the participant did not make a labor contribution in the development of the cooperative during the reporting period, profit is accrued in accordance with his share.
Unitary enterprise
Profit Analysis, as well as its distribution have some features in a unitary enterprise. Such an organization does not have the right to own the property of the company. It is only assigned to this organization. The owner in this case is the state. By his consent, the management of the company may dispose of the property entrusted to him.
The net profit of a unitary enterprise is formed after the provision of services or work, as well as as a result of the sale of finished products. This amount is directed to the further development of the organization, social needs, as well as services. Norms are established by law. They are developed by the Ministry of Finance of the Russian Federation.
The rest of the profit is withdrawn by the state and sent to the federal budget.
Financial performance management
Increasing the efficiency of profit formation and distribution achieved through competent management and planning. For this, the management of the organization is obliged to approach the adoption of any decision regarding the financial result comprehensively and reasonably. In the process of managing an organization, managers must apply different approaches.
It is also necessary to observe the interests of not only the owners of the enterprise, but also the state. The planning process requires careful analysis of the level of risk. To gradually increase the amount of financial result, it is necessary to increase the competitiveness of products.
Having examined how it goes the formation and distribution of enterprise profits, you can properly manage this process, eliminate the negative factors that inhibit development.