Calculation of profitability of the company isa very important stage in assessing the financial condition. These indicators allow you to judge the effectiveness of the activity. However, in order to draw any conclusions, a simple calculation of these indicators is not enough. After calculation, the indicators should be analyzed using a particular method. One of the most popular methods is the factor analysis of the profitability of the enterprise, that's why we will stop on it.
As can be judged by the name, this type of analysisis to determine the impact on the resulting indicator, in this case - the profitability of certain factors. A major contribution to the development of this method was made by DuPont, whose specialists developed special formulas that make it easy to analyze the return on assets and equity. These formulas are based on the use of the absolute difference method, which is applied to several transformed mathematical models. Consider those transformations that need to be carried out to produce a factorial analysis of profitability by these formulas.
Let's start with the return on assets, whichis determined by the ratio of net profit to the average for the period under consideration of the value of these same assets. Multiply the numerator and denominator of this formula by the revenue figure. Now you can notice that the received fraction can be represented as a product of two fractions, each of which is an economically significant indicator: turnover of assets and profitability of sales. Thus, we can conclude that it is this set of factors that affects the profitability of assets.
With regard to the profitability of the owner's capitaltransformations worth doing a little more. The estimated formula of this indicator should be multiplied and divided into revenue and asset figures. After a number of simple changes, it will be possible to conclude that the degree of effectiveness of the use of the owner's capital depends on the same factors that affect the profitability of assets (their turnover and profitability of sales), as well as the indicator of financial dependence.
Factor analysis of profitability of productionis produced in a somewhat different way. The model can be transformed by revealing and detailing the indicator of profit in the numerator and the cost in the denominator. After this procedure, the method of chain substitutions can be applied to the obtained mathematical model. Use the method of absolute differences in this case is impossible, since the resulting mathematical model will have a multiple character.
Obviously, having the opportunity to dofactor analysis of profitability, depends on the availability of information about factors over several periods, at least two. It is most convenient to present the initial data, intermediate and final results to represent in the tables. Of course, if possible, it is worth using the means of automation, that is, computers and special software. As a result of the analysis, it should be concluded which factors had the most positive and negative impact, and what factors can be neglected. The subsequent managerial decisions should promote the strengthening of positive influence and the weakening of the negative.
This type of analysis is not unique,which are subject to profitability indicators. Much more often, they are analyzed using the method of comparisons. Comparisons can be made with the indicators of the same enterprise for previous periods (horizontal analysis, analysis in time), as well as with similar indicators of other firms (analysis in space) and with industry average levels.
