- Accounting, normal and economic profit
- How do businesses get revenues
- The financial result of the company
- Financial control
- Deductive method of analysis
- Basic methods
- External financial analysis
- Internal financial analysis
- Profit analysis
Profit in the economy - is expressed in monetary terms, the ratio between costs and cost of goods sold. How it is analyzed, how it is formed, and how it is distributed in a market economy, we will discuss in the article.
Accounting, normal and economic profit
There are three types of financial indicators. Accounting (accounting) profit in the economy - this is what is the difference in the price of goods sold and the cost of its production. Entrepreneurial remuneration is called normal profit, it is the cost of production. And the difference between normal and accounting profit is economic. The real yield is determined by the main criterion - the value, since the profit in the economy is just the size of the income of the enterprise.
It arises on the condition that the total revenue not only covers, but also exceeds all internal and external expenses. This includes normal earnings as a percentage of capital. Striving for greater profit is an incentive for entrepreneurs to use resources as efficiently as possible, reduce costs, master new technological advances, tap into scientific potential, achieve technological progress, and open new industries.
Under these conditions, the total amount of income from the listed activities, including the main ones, also grows, since profit in the economy is primarily a balance growth, which is the total amount from all existing activities.
How do businesses get revenues
Profits from enterprises are obtained, of course, from the main production. Auxiliary activity brings only some of them, which are formed after the fulfillment of non-industrial services - transport, construction, from the work of subsidiary farms and enterprises selling products. In the same way, revenues (profits) are replenished by providing paid services to the public.
There is also non-sales activity practically at each enterprise, irrespective of its size and significance. She also makes a profit.
The difference is calculated between penalties, fines, penalties, that is, the amounts paid and the amounts received: rent from own premises, operating income with tare, and the like. This balance will be considered profit from non-operating activities.
The financial result of the company
The current crisis conditions, in which all the country's enterprises, without exception, have been forced to mobilize all available domestic resources, which could, if not increase, then at least maintain the existing level of profit. The calculation and planning of economic activities are now the main components of the successful operation of the enterprise. An enormous role is played by the analysis that determines the further course of the economic process. Including - competent identification of ways to use profits.
Profit and its value show all the weak and strong points of the enterprise, and analysis of its activities helps to make the best management decision. For this, all economic processes and relations are thoroughly investigated. The financial result of the company, as well as the analysis of ways to generate income, determines the rational ways of structuring funds and their rational use. In the same way, the analysis of financial activity is a tool for forecasting both individual indicators and the entire economic profit as a whole.
Through financial analysis monitored cash flow, checks the rationality of the use of profits. Profit should be checked for compliance with standards and norms for the expenditure of material and financial resources, the appropriateness of costs.
Financial analysis has a certain information base - accounting reports. Its results are operated both by internal users (managers and management) and external users - creditors, owners, buyers, suppliers, stock exchanges, consultants, lawyers, and even the press.
Of particular importance is the distribution of profits of the enterprise, the study of key parameters, drawing up an accurate and objective picture of its state in financial terms. Such control has its own goals, aimed at studying the methods of financial activity of the enterprise.
The main goal pursued by financial analysis is to obtain information regarding losses and income, the structure, with all its changes in liabilities and assets, settlements with creditors and debtors, as well as the distribution of the company's profits. The analyst or manager in this case is interested in both the current state and the projection to the near or distant future. These are the expected parameters of the financial condition.
Such goals can be achieved along with the solution of a whole set of certain interrelated tasks. Analytical tasks have to specify all organizational, informational, technical, and methodological possibilities. The evaluation of the financial activity of an enterprise is always served by the results of the analysis of financial statements.
Deductive method of analysis
The main principle of analytical reading of reports is a deductive - from general to specific - repeatedly used in the course of analysis. This is how the logical and historical sequence of events and economic factors is reproduced, the directionality is revealed, the profit components and the strength of their influence on the overall results of operations are calculated.
The six main methods of reading reporting documentation can be distinguished from the many existing ones:
- Horizontal analysis. With it, each position of the financial statements is compared with the previous period.
- Vertical. The structure is determined by the final financial indicators and the effect of each reporting position on the overall result is revealed.
- Trend analysis. Each position is compared with a number of previous ones, whereby a trend is determined - the main trend, the dynamics of a given indicator, cleared of accidents of influence and individuality in the characteristics of certain periods. The trend forms quite possible future indicators, thus making a long-term forecast for production profits.
- Relative indicators and their analysis. This is a calculation of the interaction of individual report positions or positions in different forms of reporting that determine their relationship.
- The analysis is comparative, on-farm, where individual aggregated reporting indicators for the entire firm, subsidiaries and divisions are studied. In addition, inter-farm indicators of this enterprise are compared with those of competitors. So count on modern enterprises profit in a market economy.
- Analysis of factors. The effects of individual factors on the outcome indicator are analyzed using stochastic or deterministic research methods. This type of reading of reports is straightforward, when the effective indicator is split into its component parts, and also synthesized (inverse), when individual elements of the report merge into a general indicator of performance.
External financial analysis
The features of external financial analysis are as follows:
- its subjects are multiple, a large number of users are interested in information about the company's activities;
- the goals and interests of the subjects of analysis are diverse;
- there are standard methods, accounting and reporting standards;
- the analysis is focused only on external, public reporting;
- its tasks are limited due to the previous factor;
- The results are open to users who want to read information about the activities of the enterprise.
However, there may be undercurrents. If financial analysis is based only on financial statements and looks like external, conducted outside the company by the hands of its interested contractors, state bodies or owners, it still does not allow to reveal the secrets of the success of this company, since the content of external analysis is made up of certain factors. The components of the profits and the ways to achieve them usually remain outside the analytical material, only its financial performance is known.
The above analysis is carried out in a certain way:
- Absolute profit figures are analyzed.
- We consider the relative indicators of profitability.
- The financial condition, market stability, balance sheet liquidity, solvency of the given enterprise are checked.
- Analyzes the effectiveness of the use of loans.
- The financial condition of the enterprise is diagnosed and the rating of issuers is made according to the rating.
Internal financial analysis
The variety of economic information regarding the activities of enterprises is truly great, and there are also many ways to analyze it. The data of the financial statements and the analysis carried out on their basis are called the classical method. Internal business analysis of finance - the main source of information, which is complemented by other data from the system of accounting, data on production technical training, regulatory and planned information, etc.
The main value of this information in management optimization. For example, an analysis of the advance of capital and its efficiency, the relationship between costs, profits and turnover is required. Internal management analysis goes deeper into production accounting data for the purpose of conducting a comprehensive assessment of the economy and researching all economic activities - whether its efficiency is high.
Features of management analysis:
- results are focused on their own leadership;
- all sources of information are used;
- can not be regulated by;
- full complexity in carrying out, the study of all activities of the enterprise;
- accounting, analysis, planning and decision making are integrated;
- the results are as closed as possible to respect trade secrets.
The activity of an enterprise according to financial results is reflected in the whole system of indicators that make up profit. Their systematic consideration presents a certain difficulty, since most of the indicators characterize not only the financial result, but have many differences in designation. Difficult choice for participants in the commodity exchange, as the need for information relating to the real state of the enterprise, often not met. Administrations are primarily interested in the mass and structure of the profits, as well as the factors that influenced its value. Tax officials want to get information, as much as possible, about the balance sheet profit, which includes the sale of products, income after the sale of property and much more from the same series.
Hence, the analysis of the components of profit in the economy is not an abstract, but a very specific analysis that helps develop a strategy of behavior aimed at minimizing losses, financial risks, and so on. Here, first of all, we study such elements of the enterprise’s activity as changes of indicators - each for the analyzed period - the structure of them and changes are studied, the dynamics of changes are studied for a number of reporting periods (of course, in a generalized form).
The net profit remaining at the disposal of the enterprise - funds after the payment of all taxes and deductions - is spent, as a rule, on the needs of the enterprise itself, and a detailed analysis is especially necessary here. This includes the expansion of production, and an increase in spending on non-production needs, and environmental protection, and training, and the creation of social funds.