Net profit is the main source of own financing, which is accumulated annually on the bank account of the enterprise. The amount of profit is an indicator of how efficiently the organization works. The amount is taxed, and the income statement is included in the required financial statements. In this regard, it is extremely important to have the skills to calculate the profits of the enterprise.
How is profit generated?
The organization sells goods, services or work. Moreover, the established sales value is higher than the actual, as a result of which the company receives a positive difference between prices - income.
In the implementation process, the following scenarios are possible:
- the amount of revenue is higher than the actual cost - profit is generated;
- the amount of revenue is equal to the cost - profit is not formed, but so is the loss: the proceeds are enough to cover expenses;
- the amount of costs for the sale and production of goods exceeds the amount of revenue - a loss is formed.
The goal of each enterprise should be, if not maximizing profits, then at least the desire to generate the net income necessary for a competitive position.
What is the place of net profit in the enterprise income system?
Profit is the main goal of entrepreneurship. On the one hand, it has a stimulating character - both enterprise management and employees are interested in receiving it. After all, the higher the amount of profit, the higher wages employees can receive. On the other hand, this expression is not always true. There are more and more cases when profit is exploitative in nature: an enterprise increases profit by lowering wages. Such a method may bring some benefits, but the effect will be short-lived.
Profit becomes the only true method of financing the enterprise: the authorized capital cannot last long without the receipt of funds. Borrowed money is also not the best option for the permanent provision of the company. Lack of profit negates the very essence of entrepreneurship. At the macroeconomic level, the role of profit for each enterprise is enormous. With its growth, the state’s income will increase, which means, in the future, the general standard of living.
The main types of profit in economics
Having understood that profit is the difference between the total income and expenses of the enterprise in monetary terms, we consider the structure of profit from the point of view of the economy. The main types of profit:
- from sales;
- gross
- clean
- balance sheet;
- marginal.
There are more than 15 indicators of enterprise profit, which allow us to study the situation in more detail. We will focus on those that are used in the preparation of financial statements and characterize the activities of any enterprise.
Margin and retained earnings
Margin profit indicator is used in calculating net profit. In addition, value is of particular value for evaluating the performance of small businesses. Margin profit is determined by the formula: Pm = B - PPwhere:
- In - the amount of revenue;
- RP - expenses of a variable nature (arising directly in the process of the main production, if any).
Interest in such a simple indicator is determined by quick calculation and identification of the most profitable direction or group of goods. As a result, the company adopts a further plan of action, whether it is the liquidation of individual industries or raising the rate of return.
Retained earnings - an indicator calculated almost at the end of a long chain of calculations.It is the difference between the total revenue (including other income) and the full cost (all expenses). Do not take into account the amount of tax on income of the company. Small business defines book return as the amount of net income before income tax.
Formulas for calculating operating and gross profit
Gross profit characterizes the efficiency of the business. The indicator is used to analyze any type of enterprise. Gross profit is determined by the formula: Pat = B - Ceb, where:
- In - the total amount of revenue from sales;
- Seb - the cost of sales (works, services).
As can be seen from the formula, gross profit shows the amount of sales revenue received, not including other income / expenses and income tax. The value of gross profit fully reflects the results of the implementation process.
Operating profit allows you to see the financial result of the company. The calculation formula consists of the difference in total revenues and expenses, production costs, depreciation charges. In mathematical form, it looks like this: Pop = B - Ceb - Pop - And where:
- In - the total amount of revenue from sales;
- Ceb - cost of sales;
- Rop - the amount of operating expenses;
- And - the amount of depreciation.
Indicator operating profit allows you to evaluate the efficiency of production or trading activities of the organization, taking into account the need for reproduction of fixed assets.
Net profit: calculation formula according to the algorithm
Net profit is that part of the balance sheet profit that remains at the full disposal of the company and is formed only after fulfillment of obligations to the state budget. There are several ways to calculate the net profit of an enterprise. However, if you have information about the main components, net profit is easily calculated. The calculation formula consists of several actions. We will analyze them point by point, compiling an algorithm for calculating:
- Based on data statement of financial performance, identify the total revenue of the enterprise.
- Subtract the sum of variable costs from the found value. The obtained value characterizes the marginal profit of the company.
- Subtract the amount of expenses of a permanent nature. The result is operating profit.
- Subtract the amount of other expenses. The resulting value is the company's profit before tax (balance sheet).
- Subtract tax and other mandatory payments to the budget. Formed the amount of net profit.
The use of a margin profit indicator for further analysis of financial results is most typical for small business entrepreneurs, and operating - for large organizations.
Net profit formulas for the Russian Federation and some CIS countries
In many CIS countries, accounting, based on the Soviet system, calculates net profit:
formula in Belarus and the Russian Federation - Ph = Nf + Pat + Pop - N, where:
- Pf - financial profit (difference in financial income and expense);
- Pat - gross profit;
- Pop - Operating profit;
- N - the amount of taxes and mandatory payments to the budget.
The data for the calculation are indicated in the report on the financial result of the company. Using the formulas for calculating gross and operating profit, you can easily find all the variable values.
There is another general formula for calculating the net profit of an enterprise: Чп = В - Себ + Д - Р - Н, where:
- B is the total amount of revenue;
- Ceb - the full cost of sales;
- D - other income;
- R - other expenses;
- N - the amount of taxes and mandatory payments.
If you look closely at the variable values of the formula, you can make sure that it is identical to the first method of calculating net profit. The only difference is that in this case, the values of gross and operating profit are replaced by components for their finding.
Net profit: calculation formula for the balance sheet of the enterprise
The balance sheet is a mandatory financial reporting document, on the basis of which the analysis and completion of many other securities is carried out. In order to perform actions, it is necessary to recall the codes necessary for calculating indicators:
- 2110 - “Revenue”.
- 2120 - "Cost of sales."
- 2210 - "Selling expenses."
- 2220 - “Administrative expenses”.
- 2310 - "Income from other organizations."
- 2320 - “Interest receivable”.
- 2330 - Interest payable.
- 2340 - “Other income”.
- 2350 - “Other expenses”.
- 2410 - “Income tax”.
The balance sheet in article 2400 reflects net profit. The formula for calculating the balance sheet will take the following form:
2400 = 2110 – 2120 – 2210 – 2220 + 2310 + 2320 – 2330 + 2340 – 2350 – 2410.
We calculate net profit using an example
Consider the situation at the enterprise with the source data provided: LLP “X” for the reporting year sold 89 thousand units of goods at a price of 100 rubles. apiece at the actual cost of 55 rubles. a piece. Revealed operating expenses in the amount of 256 thousand rubles. The amount of income tax amounted to 56 thousand rubles. Determine net profit. Follow the steps:
- We calculate the sales revenue: B = 89,000 × 100 = 8,900,000 rubles.
- Define the cost: Ceb = 89,000 × 55 = 4,895,000 rubles.
- We calculate the indicator of gross profit: Pat = 8,900,000 - 4,895,000 = 4,005,000 rubles.
- Define the amount of profit before tax: Pat - P = 4,005,000 - 256,000 = 3,749,000 rubles.
- We calculate the desired value - net profit: 3,749,000 - 56,000 = 3,693,000 rubles.
In the reporting year, 3 million 693 thousand rubles amounted to net profit. The calculation formula, an example clearly show how the calculation of net profit is carried out according to the algorithm. It is worth noting that the condition did not say about other income of the enterprise, so the indicator was not used in the calculations.
Profitability and Net Profit Ratios
In the financial analysis, another indicator of the company's activity is used - the rate of net profit. The calculation formula consists of the values of net profit and total revenue: NP = Nh ÷ V × 100%. It is believed that with the efficient operation of the enterprise, the coefficient indicator is ≈ 0.2.
Thus, the indicator of profitability of an enterprise of any direction is always the norm of net profit. The balance sheet calculation formula is based on the component values. We write the calculation algorithm for the lines of the balance sheet:
- Net profit appears in line 2400, and the amount of revenue in line 2110.
- Calculate the result of the private line 2400 and 2110.
- The resulting number is multiplied by 100%.
- The result of the actions taken is the rate of net profit.
Except Hp.h. in financial analysis, the value of net profit margin is used. Profitability is an indicator of the effectiveness of economic activity. In this case, it characterizes the value of profitability of sales. The formula for calculating the profitability of net profit or the coefficient of net profitability looks like the ratio of net profit to the amount of revenue: Kch. = Nh ÷ V.
The coefficient shows how much net income falls on the ruble of sold works, services or goods. Using balance, you can calculate the value using the ratio of lines 2400 to 2110.
Bank net profit: calculation formula
To characterize the result of the bank’s activities, net profit is also used. The calculation formula consists of gross profit and administrative expenses: Ph = Pv - R.
The net profit rate for a bank is defined as the ratio of net profit to equity: Nch.p. = Nh ÷ Ksob. The resulting coefficient is converted to percent by multiplying by 100%.
The value of net profit in financial analysis
The goals and directions of the use of the net profit indicator are reduced to financial analysis and forecasting the future activities of the enterprise. Authorized persons may use the net profit indicator to assess:
- degree of investor interest;
- ability to fulfill obligations;
- probabilities of potential involvement of owners or shareholders;
- sustainability and stability of the enterprise.
There are several methods of analysis in which the net profit appears. The most commonly used factor and statistical analysis.
The first method examines in detail the factors affecting the amount of net profit: the amount of revenue, income and expenses, taxes. To conduct the analysis, it is necessary to evaluate the annual change in the indicators that form the net profit. Based on the results, it will be possible to determine which particular factor affects profitability the most.
The second method focuses on the characterization of changes in the net profit indicator for reporting periods (years or other established frameworks). Numerical data are considered in different sequences in order to achieve maximum forecasting efficiency. Can be used: exponential, logarithmic, linear and other methods of working with numbers.
In addition to the analysis of the net profit indicator, a comparison is also made with other financial analysis data. For example, with revenue or net assets.
Regardless of the size of the enterprise and its focus, one of the main characteristics of the effectiveness of economic activity is net profit. The calculation formula consists of other indicators of profitability of the enterprise. The final data is entered in the financial statements. They can also be used to evaluate and predict the activities of the enterprise. It must be remembered that behind the calculations is important information about the advantages and disadvantages of the implementation process.
