Return on total capital is a standard value. Return on total capital of the enterprise (ROE, ROCE)

Modern market economy characterized by freedom of enterprise and competition between economic entities.

Any enterprise strives for maximum effective use your resources. An economic analysis is carried out to evaluate the results of the work.

A large number of absolute and relative indicators and coefficients are calculated.

This allows you to identify bottlenecks, find reserves for increasing efficiency and outline ways for further development. One of the most important indicators is profitability.

The concept of profitability and its purpose

Profitability is the resulting relative indicator of the efficiency of an enterprise, which shows the return on available resources and capital.

It is private from dividing profit (balance sheet, gross) by total costs, revenue, and individual groups of assets. Profitability shows, what efficiency the company gets from every ruble invested in production. It can be expressed as coefficients, but is more often calculated as a percentage. If an enterprise incurs losses, then certain types of profitability are negative.

Unlike profit, which is an absolute indicator, profitability is not affected by inflation and allows us to correlate income received with expenses incurred. This gives a more complete picture of the state of affairs at the enterprise. It is possible that high profit growth is accompanied by even higher rates of growth in production costs. In this case, although profits increase, profitability will decrease. Analysis of this indicator in dynamics allows you to identify unprofitable types of products, hidden reserves further growth and evaluate pricing policy companies.

Species

Performance indicators at different enterprises may differ, since each company has its own specific work.

All types of profitability are divided for 3 groups by type of analyzed production indicator:

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Calculation procedure and formulas

For calculations, forms No. 1 and 2 of the financial statements are used - and.

The numerator of all formulas includes profit. More often, net is used, but sometimes balance sheet, gross, sales profit, etc. are used.

The denominator is the analyzed indicator (assets, capital). Simply taking these values ​​from the statements will be incorrect, since over the course of a period - six months, a year - their value on the balance sheet changes. Therefore, for correct calculation the average cost for the period is calculated. For example:

If the value of introduced and retired assets is known, then the calculation can be made using another formula:

Formula for calculating total profitability:

Foreign analysts also call this indicator return on operating capital or economic resources.

Formula shows return of all means of labor involved in the production process. The denominator does not indicate the cost of all fixed assets, but only those that are directly involved in production (OPF). These include: machines, machines, equipment, special tools, presses, turbines, engines and other production assets.

TO regulated working capital include:

• production reserves (raw materials, fuel, auxiliary materials, components, spare parts);
• semi-finished products and products in work in progress (items of labor that have not completely gone through all stages production process). Only own products are taken into account;
• deferred expenses ( cash for development of technology, development and launch of new types of products in the future);
• finished goods in warehouse.

All of the above working capital are most often working production assets (RPF). Therefore, sometimes they are included in the formula.

Formula profitability of sales:

This indicator gives an understanding of how effectively sales are going. That is, how many percent of profit is contained in each ruble of revenue. To assess the impact of operating and non-operating income and expenses, it is possible to use the value of gross profit in the formula. The calculation is also carried out using profit from sales.

Formula return on assets:

When calculating this indicator, the sum of all assets of the enterprise (balance sheet currency) or their individual species(negotiable, non-current). Evaluated together with resource productivity (revenue/assets).

Calculation profitability of the reporting period:

This indicator evaluates the entire financial activities company (not just product sales) over the past period.

Formula OPF profitability:

Shows the return on OPF. For the calculation, the cost of all fixed assets used in production, including leased ones, is taken.

Calculation profitability of costs (cost):

This indicator can be calculated both for all products and for individual product groups. An assessment is made of the profitability of production and marketing of each product (or demand for the service provided). When calculating this indicator, there is when the revenue will only cover the cost (profit in this case will be equal to 0).

Return on Investment:

This indicator provides information to the investor about how effective the investment is. It is used to compare and evaluate different projects. Analyzed along with payback period, return on capital and net present value.

Calculation examples

We will carry out calculations and analysis using the example of a plant producing cold-deformed welded pipes. The main consumers are enterprises of the chemical, fuel and nuclear industries.

Initial data:

1. Balance sheet profit for 2015 – 2760 thousand rubles.
2. OPF at the beginning year – 17120 thousand rubles.
3. OPFon con. year – 17330 thousand rubles.
4. OB.Normal.at start. year – 3240 thousand rubles.
5. OB.Norm.on con. year – 3750 thousand rubles.

Let's calculate the average annual cost of general fund, standardized working capital and calculate the overall profitability:

Thus, over the past year, from every ruble of labor involved in production, the plant extracted 13.32% of its balance sheet profit.

Analysis of the received data

To analyze the overall profitability, it is necessary to compare this indicator over time with 2014.

All data for calculations will be displayed in the table:

Despite the growth in balance sheet profit, there is a negative trend in overall profitability. This was influenced by the increase in the cost of open pension funds and standardized working capital.

To assess the impact of each factor, we will conduct factor analysis using chain substitutions.

Change in book profit calculate using the formula:

Change in OPFavg. year. calculate using the formula:

Change OB.Avg.year. calculate using the formula:

We calculate the balance (total influence) of all 3 factors using the formula:

The increase in balance sheet profit increased overall profitability for 2015. by 0.34%. The increase in the cost of open pension funds reduced this figure by 0.03%, the increase in the cost of normalized working capital also had a negative effect - by 0.73%. In this case, the growth rate of profit is lower than the growth rate of the enterprise's standardized working capital, and that is why overall profitability has decreased over time. The impact of OPF is minimal (the cost has increased slightly compared to last year).

In 2015 the plant received additional order for the production of thin-walled pipes. To carry it out, more production capacity is required. The existing equipment is fully loaded and the company launched this additional order into production in parts, moving the deadlines for completing current orders. This led to disruptions in the rhythm of work. The modernization of one pipe welding line is planned for 2016. This is the main event regarding the OPF.

Also over the past year there has been an increase in warehouse overstock and work in progress. The reason for this was the lack of equipment for hydrotesting, the purchase of which is planned for next year. A large number of pipes lay before this stage of the production process. So far, it has been possible to agree with some customers that these tests are optional. Finished thin-walled pipes for a new order were produced in small batches and had to sit in a warehouse in order to send a large batch to the customer.

The company is actively working to find new suppliers of auxiliary materials: lubricants and coolants, containers, packaging for pipes, solvent, gloves, liquid argon. They occupy a high share of regulated working capital. Some suppliers promise to raise prices for these materials, and in order to increase overall profitability, the company needs to reduce the cost of purchasing them.

The value of the overall profitability indicator in the production sector averages 4–25% for different companies. However, as follows from our example, this value in itself does not allow us to draw correct conclusions. Carrying out factor analysis gives an idea of ​​the real situation at the enterprise and helps to find problem areas and hidden reserves.

Each enterprise develops its own program to increase overall profitability, using the data from the analysis.

There are several groups of enhancement methods:

1. Improving the use of OPF. If the rate of profit growth is higher than the rate of growth in the value of open pension funds, then their operation is considered effective. Methods in this group include:
   • reconstruction, modernization and technical re-equipment;
   • compliance with the deadlines for OPF repairs and control of their quality;
   • reduction of downtime and optimal loading of equipment;
   • material incentives for working personnel and increasing their motivation;
   • implementation of computer programs in equipment management.
2. Improving the use of regulated working capital. Just like with OPF, their work is effective at higher rates of profit growth. The methods are as follows:
   • establishing the optimal size of inventory;
   • acceleration of turnover;
   • control over the volume of work in progress (the danger of high growth is that it may be a hidden defect) and finished products in warehouses;
   • timely provision of raw materials and supplies and establishment of reasonable consumption rates;
   • control .
3. Reducing production costs;
4. Increased production of more highly profitable products and search for new customers;
5. Increasing production capacity and production volumes;
6. Improving product quality, reducing final defects and production waste.

All these methods are closely intertwined. Objective economic assessment enterprises and correct management decisions lead to increased profitability and positive operating results. As a result, the well-being of society as a whole improves.

What profitability is and why its calculation is necessary is described in the following video lesson:

Let's consider return on equity enterprises. Let's dive deeper into the analysis of two ratios that determine return on equity: return on equity(ROE) return on capital employed(ROCE).

Determination of return on equity and employed capital ratios

Return on equity ratio (Return On Equity, ROE) shows how effectively your own funds were invested in the enterprise.

Return on capital employed ratio(Return On Capital Employed, ROCE) shows the effectiveness of investing both own and borrowed funds in an enterprise. The indicator reflects how effectively an enterprise uses its own capital and long-term attracted funds (investments) in its activities.

To understand return on equity, we will analyze and compare the two ratios ROE and ROCE. In comparison, the differences between one and the other will be visible. The scheme for analyzing two return on capital ratios will be as follows: consider economic essence coefficients, calculation formulas, standards and we will calculate them for a domestic enterprise.

Return on Equity. Economic essence

The return on capital employed (ROCE) ratio is used in practice by financial analysts to determine the return that a company generates on its invested capital (both equity and borrowed capital).

What is this for? In order to be able to compare the calculated profitability ratio with other types of business to justify the investment of funds.

Return on total capital. Comparison of indicatorsROE AndROCE

To better understand the difference between return on equity ratios, remember that if the company does not have preferred shares (long-term liabilities), then the value of ROCE = ROE.

How to read return on equity?

If the return on equity ratio (ROE or ROCE) decreases, then this indicates that:

• Equity increases (as well as debt for ROCE).
• Asset turnover decreases.

If the return on equity ratio (ROE or ROCE) is growing, this indicates that:

• The profit of the enterprise increases.
• Financial leverage increases.

Return on Equity. Synonyms of odds

Let's consider synonyms for return on equity and return on capital employed, because They are often called differently in the literature. It is useful to know all the names to avoid confusion in terms.

The figure below shows the accuracy of assessing the state of the enterprise using various coefficients.

The ratio of capital employed (ROCE) is useful for analyzing businesses where there is a high capital intensity (investment is frequent). This is due to the fact that the capital employed ratio uses raised funds in its calculation. Applying the ratio of capital employed (ROCE) allows us to make a more accurate conclusion about financial results companies.

Return on Equity. Calculation formulas

Calculation formulas for return on equity.

Return on equity ratio = Net profit/Equity =
page 2400/page 1300

Capital employed ratio = Net profit / (Equity + Long-term liabilities) =
p.2400/(p.1300+p.1400)

In the foreign version, the formula for return on equity and return on capital employed will be as follows:

Net Income - net profit,
Preferred Dividends – dividends on preferred shares,
Total Stockholder Equity – the amount of ordinary share capital.

Another foreign formula (according to IFRS) for return on capital employed:

Often, foreign sources use EBIT (earnings before interest and taxes) in the ROCE calculation formula; in Russian practice, net profit is often used.

Video lesson: “Return on invested capital”

Profitability capital. Calculation using the example of Mechel OJSC

In order to understand even better what return on capital is, let’s consider the calculation of its two coefficients for a domestic enterprise.

To assess the return on equity of Mechel OAO, we will take financial statements for four periods of 2013 from the official website and calculate ROE indicators and ROCE.

Return on capital for Mechel OJSC-1

Return on capital for Mechel OJSC-2

Return on capital of Mechel OJSC

Return on equity ratio 2013-1 = -3564433/126519889 = -0.02
Return on equity ratio 2013-2 = -6367166/123710218 = -0.05
Return on equity ratio 2013-3 = -10038210/120039174 = -0.08
Return on equity ratio 2013-4 = -27803306/102274079 = -0.27

Return on capital employed ratio 2013-1 = -3564433/(126519889+71106076) = -0.01
Return on capital employed ratio 2013-2 = -6367166/(123710218+95542388) = -0.02
Return on capital employed ratio 2013-3 = -10038210/(120039174+90327678) = -0.04
Return on capital employed ratio 2013-4 = -27803306/(102274079+89957848) = -0.14

The example of the enterprise’s balance sheet was not entirely successful, since profitability for all periods was less than 0, which indicates the inefficiency of the enterprise. However, the general calculation for return on equity ratios is clear. If we had income, then the ratio of these two ratios would be as follows: ROE>ROCE. If we also consider the enterprise's return on assets (ROA) in relation to return on capital ratios, then the inequality will be as follows: ROA>ROCE>ROA.

An enterprise can be considered as a potential investment target when ROCE (and, accordingly, ROE) > risk-free/low-risk investments (for example, bank deposits).

Resume

So we looked at return on equity. It involves calculating two ratios: return on equity (ROE) and return on capital employed (ROCE). Return on equity is one of the key indicators the efficiency of the enterprise along with such ratios as: return on assets and return on sales. You can read more about the return on sales ratio in the article: ““. These ratios are useful for business owners and investors to calculate in order to find a suitable investment property.

In the article we will review one of the indicators of enterprise profitability - this return on total capital. We will give a formula for calculating a financial indicator from a balance sheet, which you can use in the main indicators of a business plan, and also consider it economic sense in financial analysis.

is an indicator of the efficiency of use of an enterprise's capital. Total capital includes both current and non-current assets. Their profitability shows the profitability of the total capital of the enterprise in the conditions of economic activity.

This financial indicator is calculated together with and reflects return on investment.

Return on total capital is not a synonym. Although sometimes they are combined. The difference is that the first usually uses operating profit (Profit from sales).

Return on total capital. Balance calculation formula

Sometimes, instead of “ ” in the numerator of the formula, the following can be used: Revenue (line 2100), Profit from sales (line 200), Profit before tax (line 2300).

The numerator is the average value of Assets. It is necessary to take the value of assets at the beginning of the period, add it with the value at the end of the period and divide by 2. The reporting period can be a quarter, six months, a year.

One of the disadvantages of this indicator is that it reflects the efficiency of the enterprise depending on the amount of profit it received during the reporting period, but in the future, due to uncertainty, the enterprise may face a different economic situation. If this indicator decreases, it is necessary to increase it (for example, take out additional credit funds) to increase it to target levels.

Standard value of the indicator

The standard value for this indicator is not regulated and the trend of its change is assessed. The table below shows the relationship between trend direction and financial health indicator.

Return on equity- this is a coefficient equal to the ratio of net income to the total cost of capital of the organization. This indicator is key for large companies, since it is the analysis of return on capital that allows one to assess how effectively money has been invested. The owners invest resources in the authorized capital and for this they regularly receive part of the enterprise's profit, and return on capital allows one to calculate the income received per unit of invested funds. To calculate equity capital, accounting information is used (in particular,).

Return on equity (formula)

Return on equity is net income divided by equity and multiplied by 100 (to convert to a percentage).

The net income indicator is indicated on the basis of the income statement; The cost of equity is taken from the liability and, as a rule, the average value is calculated ((value at the beginning + value at the end of the reporting period) / 2).

Return on equity (Dupont formula)

The three-level analysis is carried out using the Dupont formula, which considers return on equity as the product of three basic indicators: return on sales (profit divided by revenue), asset turnover (divided by assets) and financial leverage (ratio of loan and equity capital).

If an enterprise has unsatisfactory return on equity, then this formula allows you to understand what exactly led to such results.

Standard values ​​of the profitability ratio

Based on the return on equity index alone, it is impossible to give an objective assessment of the company's performance. Often a company has a fairly large share of borrowed funds, which does not necessarily indicate negative trends. Therefore, return on equity primarily reflects the return on invested funds. And in order to assess how effectively the funds are invested, the profitability indicator is compared with other possible ways making a profit, namely, with the rate on bank deposits.

The minimum acceptable value of the return on equity ratio is calculated as the average percentage for, multiplied by the difference of one and.

Thus, in cases where the return on equity falls below this norm, it is more profitable for the investor to transfer the money to a deposit or invest it in another company.

In general, a high profitability ratio indicates a high profit per unit of capital invested and is positive characteristic. However, the value of the coefficient can also increase due to the large share of loan capital in authorized capital, which, in turn, indicates financial instability and high risks. This reflects the basic law of business: the more money received, the higher the risks.

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Profitability, which came into our language from German, contains the word “profitability” as one of its synonyms and essentially means the ratio of income to a company’s predetermined resource, for example, capital.

If they talk about an enterprise as a whole, they usually mean the profitability of all its resources taken together.

Return on equity as economic indicator became the most important factor that determined the company’s long-term attractiveness to investors.

This indicator informs how much a ruble invested in a business gives the owner of profit.

An important part will be the profitability of products, the calculation formula for which is well known to specialists.

But the starting point when assessing the company's performance is comparison with the size of the bank's rate of return on capital.

2.Formula for return on equity.

Typically, the return on equity formula is used to evaluate similar firms that are in the same industry. Comparing the result of using capital reveals the degree of preparedness management personnel. From a mathematical point of view, the formula is simple.

Return on equity is equal to:

• — divide net profit by the amount of capital;
• - multiply the quotient by one hundred percent.

The amount of capital represents the value of the property indicated in a specific in monetary terms in the balance sheet. It belongs to the owners of the company's shares minus existing debts.

But gross profitability is a slightly different concept in business with a special financial expression.

Return on equity can be calculated using another formula. It is enough to multiply the return on assets with the financial leverage ratio.

The following conclusions follow from the formula:

• — rational use of investments provides a chance to increase shareholder profits;
• - the income from the company’s activities far exceeds the lending rate.

The size of financial leverage shows the efficiency of turnover borrowed funds. Good management of the company means that the financial leverage in digital terms is greater than one, but not very high. His great value issues an excessively large share of loans, which is always associated with high risk.

3.Formula for return on total capital.

Total capital combines non-current and current assets. Their profitability informs them about the assets that the company managed to attract to generate revenue of one ruble.

Taking this circumstance into account, an index of profitability of any enterprise is formed.
The profitability of total capital can only be assessed by the ratio of the price of all assets over a certain period on average and income before taxes were paid.

The return on total capital is determined from the ratio of profit minus interest and taxes to the company's assets.

Maximizing profitability for employees means:

• — the need to increase revenue;
• — reduce non-production costs and production costs;
• — reduce the size of assets based on reducing accounts payable and receivable.

The formula for return on total equity is dividing operating profit by assets. The resulting indicator resembles return on assets. Attracting investment means in practice a deterioration in the return on total capital.

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4.Profitability level formula.

There is a profitability of fixed assets in economics, a formula for calculating it. And the profitability level summarizes the company’s performance and reflects profitability in relation to the business base.

The amount of profit, covering both the costs of production and sales, in excess of them forms net income, an indicator of the profitability of the enterprise. It is no coincidence that it is a reliable indicator of the quality of work.

The level of profitability correlates the value of current and fixed assets with the amount of income. Such assets create value. The smaller it is, the higher the performance of the company.

The profitability level formula is simple:

• — it is necessary to summarize expenses for fixed assets and current assets;
• — divide the amount of income by the resulting amount of costs.

The level of profitability will be significant if functioning well revolving funds, fixed assets, at their low prices. The profitability ratio plays a role; its formula uses information about the company’s balance sheet, losses, and income when calculating.

5.Formula for overall profitability.

Overall profitability expresses the dependence of the normalized means of turnover, the average price production assets and balance sheet profit. The connection of funds with material and similar expenses forms the profitability of the company. It is the main indicator when analyzing the work of any company.

The formula for overall profitability is as follows:

• — the total amount of balance sheet revenue must be divided by the price of fixed assets of production, tangible assets in circulation, intangible assets (on average for twelve months);
• - multiply the quotient by 100 percent.

In fact, overall profitability and net profitability, formula finished products and the whole company.

6. Cost return formula.

When analyzing an accounting report in order to determine the effectiveness of the use of material resources, it is impossible to do without a cost-benefit ratio.

It is used to characterize the profitability of production and indicates the income received by the company from the ruble involved in the manufacture and sale of products.

The cost return formula as a percentage is calculated as follows:

• — net profit (in rubles) is divided by the cost of goods sold (in rubles);
• - the resulting quotient is multiplied by one hundred percent.

Cost profitability is related to the amount of cash inflow, which includes depreciation and net profit for the reporting period, as well as cost of goods sold, which represents the total amount of expenses for it.

Describing the profitability of activities, this formula complements the general economic situation of the company.

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7.Profitability threshold formula.

The profitability threshold is revealed by such concepts as the number of products sold in physical terms and the profit of the enterprise. They are the guarantors of covering both semi-fixed and variable expenses with revenue equal to zero.

The profitability threshold is represented by sales volume. Under it, the company, without achieving income, covers all essential costs itself.

This is the level of sales of products when the company, without receiving a loss, was unable to achieve profit in its activities.

Profitability threshold formula in rubles:

• 1. subtract variable expenses from income;
• 2. multiply revenue by fixed costs;
• 3. Divide the resulting product by the difference.

Each company has its own rate of return, a formula for success. But, in general, profitability is a relative indicator. It can be expressed as income per unit of investment funds, and more often as a percentage.

8.Formula for profitability of core activities.

The key indicator of the success of the enterprise was the profitability of its core activities. Like other economic assessment ratios, including return on capital, a formula on the company’s balance sheet, profitability expresses the efficiency of any production process.

To determine the profitability of the company’s core activities, it is enough:

• — report in form number two on losses and income;
• - balance sheet in form number one.

To find out the profitability ratio of the main activity, it is necessary to divide sales income by production costs. This coefficient denotes the value net revenue from one ruble, which is spent on the manufacture of products.

The established profitability and the formula for its derivation characterize the company as a whole and each area of ​​work separately.

9. Return on investment formula.

The capital invested in the activities of the company has its own profitability.
Its formula:

• 1. divide net operating profit, excluding adjusted taxes, by investment capital;
• 2. Multiply the resulting quotient by one hundred percent.

Investment means only capital that is invested in the main production of the enterprise. And revenue in this case is taken into account only from core activities. At the same time, the profitability of funds, the formula of which is known, complements economic calculations.

The invested capital is the amount current assets and net fixed assets excluding non-interest bearing liabilities.

10.Formula for profitability of products sold.

Product profitability has three components:

• 1. Profitability of each product.
• 2. Profitability of products sold.
• 3. Profitability of commercial products.

Any profitability indicators, the formulas of which have been developed by economic science, are interconnected. Thus, the profitability of products sold is considered in connection with the proceeds from the sale of the released product and its full cost. This is very important indicator quality of the enterprise.

The profitability of a product confirms the effectiveness of the costs of its production. Income from sales crowns the labor efforts of the enterprise’s employees, and therefore directly affects wages and opportunities for expanding production. It is enough to know the cost, profitability, how to calculate, the calculation formula, and then the economic situation in the company becomes clear.

The profitability of products sold is the ratio of the proceeds from its sale to the full cost. Simple formula this has been confirmed by practice.

It allows you to calculate one of the main economic results of a company’s work and make a forecast for the future, taking into account potential opportunities.

Eloquent in this regard is “net profit margin, the formula” of which is also simple. It is not for nothing that economic science puts the company’s profitability indicators at the forefront, since they are the ones that can really confirm the generalized characteristics of the results of labor and the joint efforts of the company’s employees.