In order to understand the essence of the activities of various enterprises, it is necessary to study the types of profit that companies use. Each of them has its own characteristics and functions.
What is profit
Profit should be understood as the difference between the revenue received and all the costs that were incurred by the enterprise to carry out financial and production activities.
Regardless of what types of profits are taken into account, it can be argued that the increase in revenue over expenses reflects the purpose of entrepreneurship and is a key indicator of the effectiveness of the activities conducted by the organization.
Profit can be calculated in various ways. The directions of its distribution may also differ. Depending on these factors, this performance indicator of the company is able to have several types:
- Operating profit;
- balance sheet (gross);
- net (after tax);
- profit from ordinary activities.
Let us dwell on each option in more detail.
Gross profit
This is nothing more than the difference between the cost of production and net income obtained in the process of its sale.
As for the cost, it is worth noting the following fact: it can include not only production costs, but also property tax, land payment, related fees, excise tax, tax on vehicle owners, etc.
Therefore, considering the various types of profit of the enterprise, it is worthwhile to understand that the gross will decrease by the sum of all the above payments and fees.
Operating profit
In this case, we are talking about retained earnings which was calculated taking into account the difference in other operating expenses and income.
Operating is understood as the income received from the activities of the enterprise, with the exception of the proceeds of the company, which was originally laid down in the retained earnings. In other words, we are talking about the following types of income:
- from operating rate difference;
- from rental property;
- reimbursement of assets written off earlier;
- income received from the sale of current assets (financial investments are an exception).
Operating expenses associated with the costs associated with the conduct of the enterprise:
- household expenses (storage and sale of goods, product delivery, advertising, etc.);
- administrative costs (expenses of general economic value associated with the maintenance and management of the enterprise);
- other operating expenses (bad debts, losses from depreciation of the stock of goods, economic sanctions, the cost of inventories that were sold, losses due to changes in operating exchange rate differences).
Types of profit of the enterprise necessarily include the operating type, since it is the basis of the company and allows you to evaluate the level of production efficiency.
Net profit
In this case, we are talking about profit, which comes at the disposal of the company only after the profit tax has been paid. You can use it in two ways:
1. The consumption fund. It is necessary for payments to shareholders and owners, incentives to staff based on work results, charity and overcoming various social problems.
2. The accumulation fund, which is reinvested profit. It is needed to create a reserve fund, invest in other organizations and develop production.
Profit from ordinary activities
Types of profit include this direction.In fact, this is operating profit, which was adjusted for the amount of financial expenses and income. It is worth noting that it is taxable.
Financial income should be understood as cash flow from investments in other companies, interest on loans, income from non-operating exchange rate differences, dividends, etc.
As for financial expenses, these include losses associated with the devaluation of non-current assets and investments, as well as interest payments on loan capital and other types of expenses that are not related to operating activities.
Sources with which profit is formed
Obviously, the main types of profit should have sources generating income. Therefore, it makes sense to pay attention to them.
- Profit from operations of non-operating type. We are talking about interest on acquired shares, income from joint ventures of companies, fines paid by other organizations due to violation of contractual terms, and financial resources resulting from ownership of debt obligations.
- Profit from the provision of services or sales of products. In this case, the company receives money through operations. Using this type of profit, you can get an idea about the profile of the company and its key activities in the market.
- Profit from the sale of property. This is the result of the sale of tangible and intangible assets of an enterprise, securities, etc.
Tax issue
Since there are various ways to generate income, the state has introduced different types of income tax. The differences come down to identifying the tax base (depending on the type of enterprise) and the rate that determines what percentage of the profits the company will pay to the state. Based on the legislation, a list of operations that are a way of generating income is determined. Accordingly, funds received with their help are subject to taxation.
There are certain exceptions. For example, those enterprises that operate as agricultural tax payers are not required to pay income tax. Those organizations that were transferred to a simplified taxation system were also exempted from such obligations.
Factors That Affect Income
Continuing to study the types of profits of the organization, it is worth paying attention to various factors that have a significant impact on the value of the enterprise. They are divided into three conditional groups: commercial, financial and production.
Considering commercial factors, it should be noted that they are mainly associated with the marketing strategy and activities of the company. We are talking about the conclusion of contracts, the basis for which is a thorough study of the promising and current market conditions, as well as organizational and economic support for sales, its direction and price regulation.
Commercial factors can and should be predicted. Moreover, the reliability of such forecasts is mainly due to the attraction of large solvent customers and risk insurance.
The production factors that form the various types of company profits are related to the rhythm of production, its volumes, as well as the qualitative parameters of the product, its structure, assortment, etc.
Speaking of financial factors, it is worthwhile to understand that they cover a broad concept. This is entrepreneurial income from all areas of the company’s activities and the revenue received from the sale of services. This means that these factors include the application of penalties, price regulation, collection of receivables, raising funds from centralized resources or loans, as well as income from deposits, securities, rent, deposits and other financial investments.
Obviously different types economic profit allow the company to remain financially stable and steadily raise its market value.
