The return on assets formula shows the approximate value of the efficiency indicator of the entire organization (company) as a whole. A high profitability ratio indicates financial well-being company and its competitiveness.
The formula for calculating profitability is different for each category of assets. The amounts for calculation are taken from the corresponding section and line of the balance sheet.
An increasing level of value indicates a positive trend in the development and overall activities of the organization. A decrease in value may indicate a decrease in the company’s turnover capacity and.
Return on assets
ROA or return on assets shows the relative level of economic efficiency of a company. The coefficient reflects the ratio of profit to the funds that formed it. The data for the calculation is taken from the balance sheet going to.
The value is relative and is usually reflected as a percentage.
ROA reflects the level of efficiency in using the company's (enterprise) property and the degree of qualified management.
It is applied for:
- reporting of cash investments;
- characteristics of the degree of income from existing cash investments and the efficiency of use of property;
- displaying the functionality of accountants' work;
- establishing the exact level of profitability in each group of assets separately available in the organization.
Through calculation, it is possible to actually analyze the degree of profitability of a company, regardless of its turnover.
The ratio reflects the financial position of the company, its ability to repay loans, competitiveness, and its investment attractiveness (quantity).
Profitability indicators are:
- Total
- Negotiable
- Non-negotiable
Increase and decrease value
An increase in the value of profitability is most often associated with an increase in the level of net income of the enterprise, with an increase in the cost of goods (services), as well as with a reduction in costs for manufactured products or services provided, with increased turnover.
A decrease in value is an indicator of a decrease in net profit received, with an increase in the value of current and non-current amounts, and decreased turnover.
Formulas for calculus
The general formula for calculating the coefficient is calculated by dividing the enterprise's income for the calculated period of time by general cost indicators.
Toward the clean financial income percentages of contributions and tax rates are added.
The resulting amount should be divided by the product. assets and multiply by 100%. To this amount of calculated income is added the interest that was taken away, including. Loan payments should be classified as gross waste.
Important: economic rent. Act. calculated using a formula without % payments to identify the company’s net profit.
This calculation is made because financial investment in a company is made in two ways: through the company’s cash supply and money received through a loan. But in the formation of capital, the type of receipt of financial components does not matter.
Balance calculation
For non-current property
The company has been using non-current assets for more than 1 year. This property (fixed assets, long-term financial investments, intangible assets, etc.) is reflected in the first section of the accounting. balance.
For calculation, the denominator indicates the total in the first section - line 1100 - this is the profitability indicator.
To analyze the profitability of indicators of other types, the denominator indicates the amount that is displayed in the balance sheet in the corresponding line.
Advice! The simplest option for calculating average profitability is to add the sum of the indicators at the beginning and end of the year and divide by 2.
For calculation purposes, the numerator indicates the amounts from the financial statements (form No. 2):
- line 2200 - profit from sales;
- line 2400 - net profit.
For current assets
The concept of calculating this type of profitability is identical to the previous one. The numerator in the formula will display the amount of income from the financial report, the denominator will be the average cost working capital. For calculation, the total amount for the balance from section 2 of line 1200 is set.
The calculation of a separate type will be made based on the amount from the corresponding line 2 of section.
ROA indicator
ROA involves the calculation of all funds of the organization, and not just independent funds. The components of the funds of the entire enterprise will be not only existing financial flows, but also loan obligations and capital.
The higher the indicator, the more financial profit the company receives, with a relatively small degree of capital investment.
The main task The work of the company's management is a constructive investment of the organization's financial resources. The ROA calculation allows you to determine whether an enterprise can be a profitable lever for generating profit with relatively small investments.
RONA ratio
RONA is an indicator of the profitability ratio net assets. Through calculation, it is possible to establish the correct use of invested capital and the receipt of large income from the invested funds by its owners.
Net assets are the total cost unit (the value of property), excluding amounts for the payment of any debts. Or, in other words, this is the profitability ratio of current and non-current financial assets.
All company owners are interested in increasing this value. Net profit directly indicates the advisability of investing capital in a given organization, and also shows the value of dividend payments and is reflected in the total value.
The RONA calculation is similar to the ROA calculation. There is a slight difference - the institution’s capital expenses should not be taken into account. This ratio is an indicator of the degree of performance in the financial market.
RONA shows managers financial group that there are investments in the acquisition and maintenance of property. The basis for calculation is annual profit after payment of all taxes.
Why does an accountant need to calculate ROA?
It is believed that calculating the ROA coefficient is most often necessary for a material group of organization analysts who evaluate the work done to maintain the efficiency of business development (search for growth reserves).
But for an accountant and tax specialists of an enterprise, this value is also of no small importance. Because assessing the profitability of a company and calculating the ROA indicator may become one of the reasons for inspections by tax inspectors.
Really large deviations in profitability, amounting to more than 10% from the industry average, are a reason to come under control tax authorities.
Dupont formula
The return on assets ratio shows how well the company's assets are used and how effectively management manages them. Information for calculations is taken from the financial statements of the enterprise - f. No. 1 and No. 2. In order to determine ROA, it is enough to divide the net profit (Article 2400, Statement of Financial Results) by the average value of the enterprise's assets (Article 1600, Balance Sheet). The standard indicator is PA>0, since otherwise the company suffers losses.
When assessing the efficiency of an enterprise, it is worth paying attention to how effectively the property owned by the company is used - its fixed assets, inventory, money in the account. For this purpose, an indicator cleared of the influence of borrowed funds is used.
Return on assets(Return on Assets - ROA, RA) is a financial ratio that allows you to determine the amount of a company's net profit for each unit of property it owns. It is calculated as the ratio of the net financial result to the value of the company's assets.
Reference! In contrast to the return on sales ratio, RA is calculated by dividing profit by the average value of the enterprise's assets: taking into account the price of property at the beginning and end of the year.
ROA can be thought of as an extension of the return on equity ratio: while it measures owners how much profit each piece of their investment generated, return on assets measures how much they earned on each piece of property acquired through their investment.
Reference! Since the PA indicator characterizes the efficiency of use of the enterprise’s property, it also characterizes the quality of management at the enterprise. This is often called the “rate of return.”
ROA shows the return in the form of net profit from the company's assets ( Money, inventory, fixed capital, accounts receivable, intangible assets etc.) and determines the company’s ability to generate profit regardless of the amount of borrowed funds in the capital structure.
Formula for calculating the indicator
Information to determine the profitability of property must be taken from the financial statements of the enterprise: balance sheet (Form No. 1) and statement of financial results (Form No. 2). These reports contain values:
- net profit (Article 2400 F. No. 2);
- current (Article 1200 F. No. 1) and non-current assets (Article 1100 F. No. 1).
Important point! To obtain the exact value of the ratio, the values of current and non-current assets are considered at the beginning and end of the year.
RA = PE / ((OAng + OAkg)/2)+((VAng+VAkg)/ 2), where
- PE is the company's net profit or loss.
- JSC ng, kg - current assets at the beginning and end of the year.
- VA ng, kg - non-current assets at the beginning and end of the year.
The above formula for calculating the ROA coefficient can be presented taking into account the relevant items financial statements:
RA = st. 2400 / ((st. 1100 ng + st. 1100 kg)/2 + (st. 1200 ng + st. 1200 kg) / 2)
RA = st. 2400 / (st. 1600 ng + st. 1600 kg)/2
The calculation procedure and a simplified example of determining the ROA value are presented in the video
Normal value of efficiency of use of company assets
The requirements for the normal PA value are similar to the requirements for other indicators from the “Profitability” group: it must be greater than zero. If the resulting value turns out to be negative, then the company is operating at a loss.
Reference! ROA is a relative indicator: it should not be considered as a single value - the analysis is carried out by comparison over the years, with a reference value or with similar ratios of competing firms.
For trading companies and service sector enterprises, the coefficient will always be high due to the small property base; on the contrary, for capital-intensive industries (metallurgy, electric power, mechanical engineering, etc.) it will be lower.
Reference! The return on assets indicator, like other similar ratios, is measured as a percentage.
Examples of calculating the profitability ratio
They will help you understand the sequence of steps and the algorithm for calculating the return on assets ratio practical examples. Two Russian companies were used as objects of assessment - the capital-intensive Russian corporation PJSC Avtovaz and trade company"M Video".
Conclusion! The return on assets ratio for PJSC Avtovaz decreased in 2016 due to a decrease in net profit. In 2017, the figure increased, but did not return to its original level. This state of affairs requires a revision of the corporation's profit generation policy.
Conclusion! Property profitability indicator for PJSC M.Video in 2015-2016. remains at a stable level. In 2017, there was growth due to an increase in net profit by 21.5%. The corporation has a favorable financial position and a sound asset and profit management policy.
If we consider both enterprises, the capital-intensive PJSC Avtovaz demonstrates a lower Return on Assets value. Its fixed assets have a high cost, which is why for each unit of them there is a smaller amount of profit. As for the M.Video trading corporation, its property is represented mainly by inventory, which allows it to achieve a higher return on assets.
The most convenient way to calculate the RA indicator is in the Excel spreadsheet editor. The attached document details the calculations presented above.
Performance indicators can be divided into direct and inverse. Direct efficiency indicators are return coefficients, which show what standard unit of result is obtained from a standard unit of costs for its production. Inverse efficiency indicators are capacity coefficients, which illustrate how many conventional units of input are needed to obtain a conventional unit of result.
One of the main performance indicators economic activity the enterprise is profitability. Profitability indicators are less susceptible to the influence of inflation and are expressed by different ratios of profit and costs. Profitability indicators are mainly measured in the form of ratios.
Profitability
Profitability can be defined as an indicator of economic efficiency, reflecting the degree of efficiency in the use of material, monetary, production, labor and other resources.
Profitability indicators are divided into different groups and are calculated as the ratio of the selected meters.
The main types of profitability are the following indicators:
- Return on assets.
- Profitability of fixed production assets.
- Sales profitability.
Return on assets
Return on assets is a financial ratio showing the profitability and efficiency of an enterprise. Return on assets shows how much profit an organization receives from each ruble spent. Return on assets is calculated as the quotient of net profit divided by average assets, multiplied by 100%.
Return on assets = (Net profit / Average annual assets) x 100%
The values for calculating return on assets can be taken from the financial statements. Net profit is indicated in Form No. 2 “Profit and Loss Statement” (new name “Statement of Financial Results”), and the average value of assets can be obtained from Form No. 1 “Balance Sheet”. For accurate calculations, the arithmetic average of assets is calculated as the sum of assets at the beginning of the year and the end of the year, divided by two.
Using the return on assets indicator, you can identify the discrepancies between the predicted level of profitability and the actual indicator, and also understand what factors influenced the deviations.
Return on assets can be used to compare the performance of companies in the same industry.
For example, the value of the enterprise’s assets in 2011 amounted to 2,698,000 rubles, in 2012 – 3,986,000 rubles. Net profit for 2012 is 1,983,000 rubles.
The average annual value of assets is equal to 3,342,000 rubles (arithmetic average between the indicators of the value of assets for 2011 and 2012)
Return on assets in 2012 was 49.7%.
Analyzing the obtained indicator, we can conclude that for each ruble spent the organization received a profit of 49.7%. Thus, the profitability of the enterprise is 49.7%.
Profitability of fixed production assets
Profitability of fixed production assets or profitability of fixed assets is the quotient of net profit divided by the cost of fixed assets, multiplied by 100%.
Profitability of OPF = (Net profit / Average annual cost of fixed assets) x 100%
The indicator shows the real profitability from the use of fixed assets in the production process. Indicators for calculating the profitability of fixed production assets are taken from financial statements. Net profit is indicated in Form No. 2 “Profit and Loss Statement” (new name “Statement of Financial Results”), and the average value of fixed assets can be obtained from Form No. 1 “Balance Sheet”.
For example, the value of the enterprise's fixed production assets in 2011 amounted to 1,056,000 rubles, in 2012 - 1,632,000 rubles. Net profit for 2012 is 1,983,000 rubles.
The average annual cost of fixed assets is equal to 1,344,000 rubles (arithmetic average of the cost of fixed assets for 2011 and 2012)
The profitability of fixed production assets is 147.5%.
Thus, the real return on the use of fixed assets in 2012 was 147.5%.
Return on sales
Return on sales shows what portion of an organization's revenue is profit. In other words, return on sales is a coefficient that illustrates what share of profit is contained in each ruble earned. Return on sales is calculated for a given period of time and expressed as a percentage. With the help of sales profitability, an enterprise can optimize costs associated with commercial activities.
Return on Sales = (Profit / Revenue) x 100%
Return on sales values are specific to each organization, which can be explained by differences in the competitive strategies of companies and their product range.
Can be used to calculate return on sales different kinds profit, which causes the existence of different variations of this coefficient. The most commonly used are return on sales calculated based on gross profit, operating return on sales, and return on sales calculated based on net profit.
Return on sales by gross profit = (Gross profit / Revenue) x 100%
Return on sales based on gross profit is calculated as the quotient obtained by dividing gross profit by revenue multiplied by 100%.
Gross profit is determined by subtracting cost of sales from revenue. These indicators are contained in Form No. 2 “Profit and Loss Statement” (new name “Statement of Financial Results”).
For example, gross profit enterprises in 2012 amounted to 2,112,000 rubles. Revenue in 2012 was 4,019,000 rubles.
The gross profit margin on sales is 52.6%.
Thus, we can conclude that each ruble earned contains 52.6% of the gross profit.
Operating return on sales = (Profit before tax / Revenue) x 100%
Operating return on sales is the ratio of profit before taxes to revenue, expressed as a percentage.
Indicators for calculating operating profitability are also taken from Form No. 2 “Profit and Loss Statement”.
Operating return on sales shows what part of the profit is contained in each ruble of revenue received minus interest and taxes paid.
For example, profit before tax in 2012 is 2,001,000 rubles. Revenue in the same period amounted to 4,019,000 rubles.
Operating return on sales is 49.8%.
This means that after deducting taxes and interest paid, each ruble of proceeds contains 49.8% of profit.
Return on sales by net profit = (Net profit / Revenue) x 100%
Return on sales based on net profit is calculated as the quotient of net profit divided by revenue, multiplied by 100%.
Indicators for calculating return on sales based on net profit are contained in Form No. 2 “Profit and Loss Statement” (new name “Financial Results Statement”).
For example, Net profit in 2012 is equal to 1,983,000 rubles. Revenue in the same period amounted to 4,019,000 rubles.
Return on sales based on net profit is 49.3%. This means that in the end, after paying all taxes and interest, 49.3% of profit remained in each ruble earned.
Cost-benefit analysis
Return on sales is sometimes called profitability ratio because return on sales shows specific gravity profit in revenue from the sale of goods, works, services.
To analyze the coefficient characterizing the profitability of sales, you need to understand that if the profitability of sales decreases, this indicates a decrease in the competitiveness of the product and a drop in demand for it. In this case, the enterprise should think about carrying out activities to stimulate demand, improving the quality of the product offered, or conquering a new market niche.
Within the framework of factor analysis of profitability of sales, the influence of profitability on changes in prices for goods, works, services and changes in their costs is considered.
To identify trends in changes in sales profitability over time, you need to distinguish the base and reporting periods. As a base period, you can use the indicators of the previous year or the period in which the company made the greatest profit. The base period is needed to compare the obtained return on sales ratio for the reporting period with the ratio taken as a basis.
Profitability of sales can be increased by increasing prices for the range offered or reducing costs. For acceptance the right decision the organization should focus on such factors as: the dynamics of market conditions, fluctuations in consumer demand, the possibility of saving internal resources, assessment of the activities of competitors and others. For these purposes, tools of product, pricing, sales and communication policies are used.
The following main directions for increasing profits can be identified:
- Increase in production capacity.
- Product quality management.
- Development of marketing policy.
- Cost reduction.
- Staff motivation.
Using the achievements of scientific progress requires capital investment, but allows you to reduce costs manufacturing process. Existing equipment can be upgraded, which will lead to resource savings and increased operational efficiency.
High-quality products are always in demand, therefore, if the level of return on sales is insufficient, the company should take measures to improve the quality of the products offered.
Marketing strategies are focused on product promotion based on market research and consumer preferences. Large companies create entire marketing departments. Some enterprises have a separate specialist who is involved in the development and implementation of marketing activities. In small organizations, the responsibilities of a marketer are assigned to managers and other specialists in management departments. requires significant costs, but its successful implementation leads to excellent financial results.
The cost of the proposed product range can be reduced by finding suppliers who offer products and services cheaper than others. Also, while saving on the price of materials, you need to ensure that the quality of the final product offered for sale remains at the proper level.
Human resource management is a separate sector management activities. The production of quality products, the reduction of defective products, and the sale of the final product to a certain extent depend on the responsibility of employees. In order for employees to perform efficiently and promptly the tasks assigned to them job responsibilities, there are various motivational and incentive strategies. For example, rewarding the best employees, holding corporate events, organizing corporate press, etc.
Summarizing the above, readers of MirSovetov can conclude that profit and profitability indicators are the main criteria for determining the effectiveness of the financial and economic activities of an enterprise. In order to improve the financial result, it is necessary to evaluate it, and based on the information received, analyze which factors are hindering the development of the organization as a whole. Once the existing problems have been identified, you can move on to formulating the main directions and activities in order to increase the company's profits.
What dictionary doesn’t dream of being explanatory, what paper doesn’t want to be valuable, and what business doesn’t want to become profitable! But not only business. Its constituent parts - the assets - are also desperately striving for this. In fact, the indicator of their profitability is a summary characteristic that demonstrates not only the practical value of the resource, but also the manager’s ability to manage it. No wonder they say: “In skillful hands, even a board is a balalaika.”
Of course, a lot depends on the chosen field of activity and on environment. Here, the larger the asset, the lower its profitability indicator. Capital intensity, as a rule, is characteristic of those industries whose elasticity of demand for goods is close to zero. Those. The entrepreneur pays for guaranteed sales with a reduced rate of profitability. Vital examples: hydrocarbon production, nuclear energy, or even companies that lay Internet cables on the ocean floor and operate them.
But that's all philosophy general outline. As for the specifics, calculating the profitability of business components is one of the tools for obtaining management signals for the company's management. This is not always an easy task in terms of labor intensity (accounting will always object), and you may not like the results. But the principle applies here: “Warned in time means saved.”
Formula and meaning of return on assets based on net profit
The formula for the return on assets ratio (KRA in Russian practice and ROA in global practice) is very laconic:
KRA = Net profit / Total value of all assets(in this case, amounts servicing current loans do not take part in the calculation)
If we multiply the value of KRA by 100%, then we get the value of return on assets as a percentage (as you like).
As follows from the formula and from the logic of the name, this indicator reflects the degree of efficiency in the use of assets by the management of the enterprise in the implementation of business processes. The extent to which management utilizes all capabilities to ensure maximum profitability.
If we take into account that in the balance sheet the asset corresponds to the amount of liabilities, this means that it is in this case (this is important) that the formula is acceptable:
KRA = Net profit / (Equity + Borrowed funds)
Thus, the return on total capital is actually analyzed. In this formula, the sum of equity and borrowed funds is in the denominator of the fraction. This means that the higher the volume of accounts payable, the lower the resulting return on assets will be. From a logical point of view, this is fair. After all, in order to provide a business with a certain profitability, there is insufficient capital available, but it is necessary to borrow, this means that the profitability of these very own assets leaves much to be desired.
It is curious that even if the volume of equity is equal to zero, the return on assets indicator will still not lose its meaning. After all, the denominator of the fraction will be different from zero. The situation clearly demonstrates that the return on assets ratio is not just a characteristic of the financial return on investment. Business here is considered as a system and KRA helps analyze the ability of this business to generate profit. The system refers to certain scarce connections, the management abilities of the company’s management, and how managers use the favorable opportunities provided.
It should be understood that return on equity is a qualitative individual characteristic inherent in each business. In this case, the scale of the enterprise is absolutely not taken into account. A business can be a family company - a convenience store, and at the same time have a KRA value close to 1. And there are also examples of transnational oil corporations that are managed very poorly, with a coefficient value below 0.01.
There are popular options for calculating return on assets using EBITDA instead of net profit. EBITDA is earnings before taxes and interest on loans. Naturally, it is higher than the net profit on the balance sheet. This means that the return on assets will also be higher. Correctly, this resembles a kind of “fraud,” a kind of attempt to mislead analysts interested in identifying the true state of affairs in the company (potential creditors or even tax authorities). It is not without reason that in global practice EBITDA is excluded from the official characteristics of the financial condition of an enterprise.
The return on assets ratio is close in meaning to assessing the profitability of the enterprise as a whole. In this regard, it is recommended to use data accounting by year. This is advisable so that the comparison of return on assets and profitability of the enterprise is correct or comparable. After all, profitability is measured in percentage per annum.
The natural desire of any entrepreneur is to maximize the return on assets of his company. To do this you need:
- increase sales margin (profit can be increased either by increasing the selling price or by reducing production costs);
- increase the rate of asset turnover (in order to collect more profit in a certain period of time).
Non-current assets are the property of the enterprise, which is reflected in the very first part of Form 1 of the balance sheet. This type of property is the most capital-intensive. Therefore, it transfers its price to the cost of finished products in parts called depreciation.
According to accounting standards, non-current assets consist of:
- fixed assets (buildings/structures, long-term equipment/tools, communication facilities, vehicles, etc.);
- long-term financial investments (investments, long-term (more than a calendar year) accounts receivable, etc.);
- intangible assets (patents, exclusive licenses, brands, franchises and even business reputation).
The coefficient formula in this case is as follows:
KRVneobA = Net profit / Cost of non-current assets (x 100%)
Interpretation of the indicator is very difficult. In fact, the value is the profitability that the presence of these assets (fixed assets) can potentially provide you with the current quality of their management. Entrepreneurs already working in this industry given value may not bring significant analytical meaning. However, for those who are just about to enter the market, the profitability of non-current assets is a key indicator influencing their decision.
It is worth remembering that the return on non-working capital is a conditional indicator. Those. it demonstrates how much you can earn from this equipment, provided that it is properly maintained and managed correctly.
Current assets are complete opposite non-current. Their useful life is less than a year and their cost is significantly lower. Current assets include all components of cost. At the same time, their price is taken into account in full (and not in parts, as is the case with fixed assets).
Structure of current assets (in descending order of liquidity):
- cash;
- accounts receivable;
- VAT refundable (on purchased inventory items);
- short-term financial investments;
- inventories and work in progress;
Formula for the corresponding coefficient (RCA in international terminology):
KROBA = Net profit / Cost of current assets (x 100%)
The significance of the resulting indicator of profitability of current assets is higher, the fewer fixed assets the company has. Companies operating in the service sector have the closest approximation, and in those areas where there is no need to seriously invest in equipment. Organizations engaged in foreign trade, as well as leasing companies (due to high size VAT recoverable). In addition, credit banks do not have a high return on assets ratio. financial institutions due to the significant volume of accounts receivable.
The profitability ratios of current (1) and non-current (2) assets should not be considered separately. They acquire much greater information content in the case of joint analysis. The predominance of one value over the other indicates the greater importance of 1 or 2 types of capital in generating company profits. The absolute value in this case plays a much smaller role for the analyst. And of course, when performing an analysis, it always makes sense to keep the return on total assets value at hand. The total coefficient is the profitability of the business, and whose contribution is greater (turnover or fixed assets) shows the prevalence of the corresponding coefficients.
Return on assets on balance sheet
It seems advisable to also calculate the return on assets on the balance sheet. In the denominator of the formula we indicate the balance sheet currency. In addition, we reduce this value by the amount of debt of the founders for contributions to the authorized capital of the organization. The numerator of the fraction still indicates the net profit on the balance sheet (after paying all taxes).
KRAp/b = Net profit / (Balance sheet currency - Accounts payable of founders) (x 100%)
Profitability on the balance sheet characterizes, first of all, the process of reproducing the company's profit. Starting conditions are not taken into account. They mean the authorized capital, as well as the obligations of shareholders (or shareholders) to repurchase it. However, the company's own funds are represented not only by the authorized capital. A significant share of them is accumulated retained earnings. And it just falls into the calculation of return on assets on the balance sheet. This is the key difference in the meaning of this indicator: it does not take into account the initial reserve (UC), but takes into account the results of past production achievements (meaning accumulated profit).
If the return on assets ratio characterizes the assets themselves in terms of their contribution to the overall pot of profit, then the profitability on the balance sheet “assesses” the entire business process as a whole, removing the value of the initial capital. However, it is recommended to consider these two indicators together.
Return on net assets
Net assets are the “property reality” of the firm. The law requires that they be calculated annually. The amount of net assets is calculated as the difference between their value reflected in Form 1 of the balance sheet and the amount:
- short-term accounts payable;
- long-term accounts payable;
- reserves and deferred income.
In fact, net assets can be called the result of the company's activities, including the results of previous ups and downs.
If the value of net assets becomes less than authorized capital, this means that the company begins to “eat up” the initial contribution of the founders. If net assets go negative, it means that the enterprise is not able to pay off its debt obligations without outside help. There is a so-called insufficiency of property.
KRCHA = Net profit / Revenue (x 100%)
The return on net assets indicator can be correctly interpreted as the rate of profit for each monetary unit of products sold. And it, of course, directly correlates with the profitability of the enterprise as a whole.
Despite the fact that the value of net assets itself is calculated at the end of the year, their profitability ratio can and should be kept, as they say, on the desktop. This indicator can warn against a catastrophic drop in sales efficiency.
Depending on the field of activity of companies, they have individual values of profitability and return on assets. These are, for example, the values of KRA for the following types of activities:
- Manufacturing sector - up to 20%
- Trade - from 15% to 35%
- Service sector - from 45% to 100%
- Financial sector - up to 10%.
Organizations operating in the service sector have an increased return on their capital due to the relatively low size of fixed assets. In addition, services cannot be stored, so the size of current (current) assets is also small.
Next come trade organizations. Their non-current assets are also, as a rule, small, but warehouse inventories push the turnover of such enterprises to increase. However, their growth is compensated by an increased (relative to other areas) turnover rate. After all, the business of such a company depends on it.
A fairly clear picture emerges with industrial production. The most expensive (among all areas of activity) fixed assets drag down the entire family of profitability indicators.
The situation with credit and financial companies is much more interesting. In an industrial environment, there are not many competitors - they all must have adequate capital (moreover, a significant part must be in in kind), and their number is limited. In the service sector there are those who know how to provide them (a serious limitation), in trade - those who were able to establish connections and get discounts. And here financial sector attracts to all those who have not found themselves in other areas. Reduced entrance thresholds the industry contributes to a perpetual boom, regardless of whether there is current macroeconomic growth or a crisis. Actually, it is the huge number of market participants that reduces to a minimum the overall level of profitability both for individual transactions and for the capital involved as a whole.
Calculation of indicators for elementary financial analysis will help organizations of any scale of activity analyze the efficiency of using existing resources and property.
Analysis methods
You can analyze the indicators:
- based on the balance sheet and on the basis of the financial results statement (OFR);
- vertically of reports, determining the structure of financial indicators and identifying the nature of the influence of each reporting line on the result as a whole;
- horizontally, by comparing each reporting item with the previous period and establishing dynamics;
- using coefficients.
Let's take a closer look at the last method of analysis. Let's look at the return on assets ratio and how to calculate it.
Return on assets characterizes the efficiency of using the organization's property and the sources of its formation. This concept is identified with the concepts of efficiency, profitability, profitability of the organization as a whole or entrepreneurial activity. It can be calculated in several ways.
Methods for calculating profitability
Return on total assets shows how many kopecks of profit each ruble invested in its property (current and non-current funds) brings to the organization, ROA. The return on assets (formula) is calculated from the balance sheet and the financial capital as follows:
Page 2300 OFR “Profit, loss before tax” / line 1600 of the balance sheet × 100%.
Net return on assets is calculated as follows:
Page 2400 OFR “Net profit (uncovered loss)” / line 1600 of the balance sheet × 100%.
Profitability of sources of formation of the organization’s property:
Page 2300 OFR “Profit, loss before tax” / Total section III balance × 100%.
As a characteristic, economic return on assets shows the efficiency of an organization. Normal values of the coefficients should be in the range greater than 0. If the calculated coefficients are equal to 0 or negative, then the company is operating at a loss, and it is necessary to take measures for its financial recovery.
Return on investment, RONA, shows how much profit the company receives for each unit invested in the company's activities. The calculation is made based on two indicators:
- line 2400 OFR “Net profit (uncovered loss)”;
- NA on balance (line 1600 - line 1400 - line 1500).
Calculation examples
Judging by the reporting of RAZIMUS LLC, profitability:
- total assets is equal to 8964 / 56,544 × 100% = 15.85%;
- net assets is 7143 / 56,544 × 100% = 12.33%;
- sources of property formation - 8964 / 25,280 × 100% = 35.46%;
- The NA will be equal to 7143 / (56,544 - 11,991 - 19,273) × 100% = 28.25%.
In addition to the characteristics financial situation company and the effectiveness of its investments, profitability affects the interest in your company from the tax authorities. Thus, a low indicator may serve as a reason for including the company in the on-site inspection plan (clause 11, section 4 of the GNP Planning Concept). For the tax authorities, the indicator will be low if it is 10% or more less than the similar indicator for the industry or for the type of activity of the company. This will be the reason for checking.
Thus, having calculated the profitability, you can independently assess whether you are subject to an on-site inspection or not. Industry average values of indicators change annually and are posted on the website of the Federal Tax Service of Russia until May 5.
