What is profitability?

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Profitability is an indicator that determines whether investments in a particular industry have paid off and to what extent. Investment efficiency can be calculated for a business as a whole, as well as for its individual parts: production, sales, assets, and many others. Having calculated the return on investment in a project, you can make plans for its further development and effectively manage the budget. The higher it is, the more attractive the company is for both its owner and investors.
We examine the types of profitability, ways to increase it, and calculation formulas in this material.

How to calculate profitability: formula
When they want to know how effectively a company's resources are philippines whatsapp number database used, they calculate the profitability ratio. It is the ratio of profit to the investments that were made in the project to obtain it. The ratio can be expressed in two ways:

write down as the profit received from each unit of resources invested in the project;
convert to percentages to simplify the analysis of the results obtained
In simple terms, profitability is the ratio of profit to costs. In general, it is calculated using the formula:

R = P / X * 100%,

where R is the profitability, P is the profit, and X is the invested or earned funds (cost price, capital, revenue, etc.).

What is profitability?
For each object, when calculating the investment payback, the variables "profit" and "investments" have a specific character. If it is necessary to evaluate the profitability of a product or service, profit will be understood as the difference between the size of the company's income and expenses, and invested funds will be the cost of the product, which includes rent of premises, employee salaries, raw material costs, depreciation and much more.

Let's look at the application of the formula using an example. The company's annual profit was 2 million rubles. 6 million rubles were spent on materials, production, marketing and other investments. We divide 2 million in income by 6 million in cost price, then multiply by 100 and get a profitability of 33%. This is how the profit per ruble spent is calculated.

A profitable sphere is one in which the volume of production or revenue completely covers the company's expenses and brings in income, i.e. exceeds the profitability threshold. To assess the level of profitability of your business, you need to compare its coefficient with the indicators of your competitors.