Formulas for calculating business profitability
Posted: Thu Jan 30, 2025 4:17 am
The analysis of a company's performance is based on several profitability indicators, measured as a percentage of net profit to a specific indicator:
to common property - return on assets (ROA);
to turnover - return on sales (ROS);
to fixed assets - return on fixed assets (ROFA);
to invested funds - return on investment (ROI);
to equity - return on equity (ROE).
In other words, the criterion of efficiency is at&t email list profit in relation to the indicator, the profitability of which is supposed to be calculated. The formulas for business profitability are as follows:
Return on assets, known as ROA
It means the ability to use the company's assets to generate income. It is important to consider whether the income is sufficient to cover the costs. Thus, the ROA value is a measure of the efficiency of using the company's equipment, raw materials, material resources and buildings. Negative values of this indicator indicate financial losses of the enterprise, while an increase in ROA indicates a more productive use of resources by the company.
Formula for determining the return on assets
ROA = P/CA × 100% ,
Where:
P — profit for a certain period of work;
CA is the average price of assets that were on the organization’s balance sheet at the same time.
Return on Sales (ROS) Index
Measures the ratio of net profit to total revenue of the enterprise. When identifying the ratio, instead of net profit, it is also possible to use total profit or income before paying taxes and interest on loans to the organization.
And the following designations may arise: the profitability ratio of sales based on total profit and the operating profitability ratio.
The calculation of sales profitability is made using the formula
ROS = P / V × 100% ,
Where:
P — profit;
B — revenue.
ROFA - fixed assets and their profitability
In a business, there are valuable assets that are consumed, worn out over time. Such assets include vehicles, electrical grids, equipment, and buildings that the company uses for its operations.
Return on Sales (ROS) Index
Source: shutterstock.com
Return on assets (ROFA) is a measure of how effectively an organization uses its assets to achieve profit.
The formula used to calculate ROFA is
ROFA = P / Cs × 100% ,
Where
P is the company's net profit for a certain period;
Cs is the value associated with the largest assets of the organization.
Return on Current Assets (RCA)
Unlike the main assets, the current assets of the organization can be completely spent. These include stocks in the warehouse, various materials and cash resources that are used to produce goods, and other resources. To assess the efficiency of using current assets, the RCA profitability indicator is calculated.
to common property - return on assets (ROA);
to turnover - return on sales (ROS);
to fixed assets - return on fixed assets (ROFA);
to invested funds - return on investment (ROI);
to equity - return on equity (ROE).
In other words, the criterion of efficiency is at&t email list profit in relation to the indicator, the profitability of which is supposed to be calculated. The formulas for business profitability are as follows:
Return on assets, known as ROA
It means the ability to use the company's assets to generate income. It is important to consider whether the income is sufficient to cover the costs. Thus, the ROA value is a measure of the efficiency of using the company's equipment, raw materials, material resources and buildings. Negative values of this indicator indicate financial losses of the enterprise, while an increase in ROA indicates a more productive use of resources by the company.
Formula for determining the return on assets
ROA = P/CA × 100% ,
Where:
P — profit for a certain period of work;
CA is the average price of assets that were on the organization’s balance sheet at the same time.
Return on Sales (ROS) Index
Measures the ratio of net profit to total revenue of the enterprise. When identifying the ratio, instead of net profit, it is also possible to use total profit or income before paying taxes and interest on loans to the organization.
And the following designations may arise: the profitability ratio of sales based on total profit and the operating profitability ratio.
The calculation of sales profitability is made using the formula
ROS = P / V × 100% ,
Where:
P — profit;
B — revenue.
ROFA - fixed assets and their profitability
In a business, there are valuable assets that are consumed, worn out over time. Such assets include vehicles, electrical grids, equipment, and buildings that the company uses for its operations.
Return on Sales (ROS) Index
Source: shutterstock.com
Return on assets (ROFA) is a measure of how effectively an organization uses its assets to achieve profit.
The formula used to calculate ROFA is
ROFA = P / Cs × 100% ,
Where
P is the company's net profit for a certain period;
Cs is the value associated with the largest assets of the organization.
Return on Current Assets (RCA)
Unlike the main assets, the current assets of the organization can be completely spent. These include stocks in the warehouse, various materials and cash resources that are used to produce goods, and other resources. To assess the efficiency of using current assets, the RCA profitability indicator is calculated.