The meaning and end result of any business is to generate income. The correct analysis helps to answer the question of whether the enterprise is efficient enough, whether it meets the requirements of economic benefit.
A separate direction in assessing the effectiveness of resource involvement, as well as the difference between income and expenses, is the analysis of profit indicators. In this article, we consider the current profit indicators, as well as the formulas for their calculation.
What is profit?
Economic science interprets that profit - these are the benefits that have arisen as a result of business activities of the subject of market relations. That is, the difference between the income and expenses of the enterprise. If the result is a number greater than 0, then profit is made, but if on the contrary, the company incurred losses.
To conduct a business performance analysis, many financial indicators are used. One of the main ones is normal and economic profit.
It is not clear to an ordinary person why economists divide profits into different types and how they can differ. After all, if in accounting the performance of the enterprise is normal, it makes a profit, then from an economic point of view an open business may not be practical. How so? Next, we will examine in more detail.
Types and indicators of profit
The economic concept of profit is quite extensive and is evaluated from different angles. But often types of profit considered from the financial result:
- gross
- from the sale of goods or services;
- taxable;
- clean.
Gross profit - this is all the profit received by the company from production and non-production activities, which is displayed and recorded in the balance sheet.
With the profit from the sale of goods or the provision of services, everything is much simpler. This is the revenue that remains after deducting direct costs for the manufacture of new goods from income from economic activity. It is very important that in this type of profit it is impossible to take into account income and expenses from non-productive activities, as this can affect the final result.
In order to find out taxable profit, it is necessary to subtract the debit result from the loan for the current period. It is from the result that it is necessary to calculate the amount that is payable as tax deductions.
Net profit is the balance sheet total of profit after payment of all taxes, fees and other budgetary contributions. That is, we can say that this is the financial result that goes on to pay dividends to shareholders (if the form of ownership is a joint-stock company) or remains to purchase new additional resources, of course, depending on a particular management policy.
We will pay special attention to the consideration of normal and economic profit.
Normal profit
Those who are just starting to encounter economic concepts may mistakenly think that this indicator reflects the company's revenue from any side. But this is not at all true.
This indicator is needed in order to determine what should be the level of profit to maintain the economic feasibility of involving resources in the production of a particular product. If the level is insufficient, then it is worth managing resources differently.
Why is normal profit calculated?
Normal profit can be considered as the level of profitability of any capital, which would be if it were placed in the form of a loan or a loan.It’s easier said, if you take into account the implicit costs of the enterprise, then the business should bring more income than if the available funds were involved in another business.
If we consider the business on the part of the manager, and not the efficiency of using the available funds, then normal profit is the fee that is needed so that he would be interested in doing just this thing.
Thus, it turns out that normal profit does not mean revenue at all, but a part of economic costs. If a total income enterprises equal to the above costs, then there is a normal profit. The formula is as follows:
- Mon = Inya,
Where:
Frost - implicit costs.
Thus, we can confirm the concept of normal profit given above.
Economic profit
So, move on to the next indicator. Economic profit is the revenue that remains after deducting all expenses from income.
This indicator can be calculated in two ways:
- If economic costs are taken away from total income.
- If you take away implicit costs from accounting profits.
Both of these paths are the same, albeit visually different from each other. After all, accounting profit already takes into account the explicit costs that are included in economic costs.
In some scientific publications, economic profit is proposed to be found in the following way:
- Ep = Pb - Mon,
Where:
EP - economic profit;
Pb - accounting profit;
Mon - normal profit.
What you need to remember about economic analysis?
The above indicators are used when conducting an economic analysis of the enterprise. He is needed in order to understand whether it is worth doing open business or is it better to invest your resources and time in another sphere.
They are used both when conducting a financial assessment, and to carry out a general analysis of the state of affairs of the organization.
But it is not enough just to calculate each of the above indicators, according to the above formulas. In order to carry out the correct assessment of the fidelity of the policy pursued by the enterprise management and conclude on the profitability of the business, it is necessary to evaluate all the costs, staff performance and the return on resources involved in the production.
In addition, it is imperative to conduct horizontal and vertical analysis of the balance sheet of the enterprise, to calculate the ratios of capital productivity, profitability, solvency and some others that help to give the correct assessment of the liquidity and financial stability of the enterprise.
