# Coefficient of return on equity, other indicators of profitability and their analysis

The purpose of creating any company is to obtainprofits, this is unquestionable. But profit is an indicator not only largely conditional, but absolute. In other words, based only on the amount of profits received, it is impossible to compare different enterprises among themselves. It is more correct to make comparisons in terms of relative indicators. In the field of studying profit and profitability, the most popular relative indicators belong to the class of profitability indicators. They are represented by a very wide range of values, but we will dwell on how to determine the return on equity, as well as assets and core business.

In order to produce products or servicesthe company carries out costs, thus forming the cost price. By the relation of the received profit to the given size of the cost price we will define profitability of basic activity. This ratio shows how much each ruble invested in costs allows you to make a profit.

An indispensable condition for the existence of a companyis the presence of the owner, therefore it is expedient to calculate the efficiency of the enterprise from its point of view. Usually, the return on equity is calculated for this. Calculating it is extremely clear and consists in dividing the net profit by the amount of equity, which can easily be found in the passive balance of the firm. With the help of this indicator, you can judge the amount of profit attributable to each unit of the owner's capital. Very often the coefficient of return on equity is subjected to a separate analysis, which we will discuss below.

Any work process is characterized by the presenceobjects and means of labor. They are assets that form the asset of the enterprise's balance sheet. In this regard, it makes sense to calculate the return on assets. Obviously, to do this, it is enough to divide the profit by the total balance. Most often, the calculation is based on net profit, but sometimes the profit is used, which has not yet been cleared of taxes.

When studying this group of indicators, oftenconduct a special analysis of the return on equity, as well as assets, which is called factorial. Return on assets in the most direct way depends on their turnover and profitability of sales, the quality of use of equity is also dependent on the coefficient of financial dependence. You may be interested, why exactly these factors? In fact, everything is extremely simple. Consider the profitability of assets, presented in the form of a ratio of net profit and the amount of assets. Multiplying the numerator of the fraction and its denominator by the company's revenue, and then making small changes, we get the product turnover indicators for the profitability of sales. The coefficient of return on equity should be multiplied by assets and divided into them.

After determining the factors, it is necessary to calculatetheir values over a number of years, and then determine how each of them changed in absolute value from period to period. At the last stage, using the method of absolute differences, the isolated influence of each factor is determined, and upon their addition, we obtain a change in the resulting indicator over the entire period.

The study of all indicators of profitability hasmeaning to produce not only from the position of revealing the influence of factors on them, but also from the point of view of their change in dynamics. Obviously, the presence of positive dynamics is a positive development. However, even the presence of positive dynamics does not always unambiguously characterize the enterprise. The fact is that other similar enterprises can be much more efficient, so it is also necessary to compare the profitability of the firm with the average industry values.