Analysis of the Operation and Financial Condition of the Enterprise

Analysis of the Operation and Financial Condition of the Enterprise Profitability of investing (return on investment) – how efficiently the assets havebeen used in profit-making. Financial profitability (return on capital employed) - how much profit has beenmade by the enterprise owners per one unit of capital invested.The group of trading profitability measures includes the following ratios: Profitability of sales; Profitability of operating activities; Gross profit margin.Within the group of the trading profitability measures the return on sales ratio isused most commonly. Profitability from sales is the relation between the financial amountfigure and the volume figure, or - how much profit is gained per each unit of net turnover.Besides, this ratio reflects the profit made as a result of both sales of goods and servicesand the costs and revenues which are not directly attributable to production of goods orprovision of services (miscellaneous extraordinary revenues, taxation payable, transactionswith securities and others). It is calculated as follows:Profit or loss in the reporting periodTrading profitability 100 % (4.25.)Net turnoverNet profit is the share of the enterprise profit remaining at the disposal of anenterprise after tax, while net turnover is revenue from sales of goods and services aftertax, which is estimated based on the sales turnover and value of goods returned.Ratio between profit and the amount of turnover generally describes whether thecompetitiveness of an enterprise has changed compared to the previous year. If this valuehas increased compared to the preceding period, this would indicate that an enterprise hasimproved its competitiveness.Profitability of sales can be increased by reducing the costs, increasing the priceper unit of goods or by speeding up the rate of increase in the amount of goods soldcompared to the rate of cost increases. For example, costs may be reduced by usingcheaper raw materials and components, by automating the production and increasinglabour productivity etc.It is also necessary to calculate the profitability which is unaffected by the taxrates, any interest paid and received etc., but that are only affected by the operating resultsin an enterprise, its pricing policy etc. Therefore, the profitability of operating activities isused in the financial analysis. This measure is used to identify the efficiency of operationsand sales in earning the income and it describes the operating efficiency of an enterprise.Earnings beforeinterest and taxesProfitability of operating activities 100 % (4.26.)Net turnoverEnterprise managers are always interested in the achievement of a higherprofitability of operating activities as this measure reflects the efficiency of the goodsproduction and sales operations in making the profit.One of the measures in analysis of the business financial activities is the grossprofit margin. According to the dynamics of gross profit conclusions can be made aboutthe reasons for the changes. The changes may be due to the following: increase in netturnover as well as the increase or decrease in operating costs.82