PROFITABILITY OF ENTERPRISE’S REVENUE - METHODOLOGY AND METHODS FOR ANALYSIS

Abstract

Profitability is an economic category of fundamental importance for the theory and practice of the economic analysis. It is a generalized relative indicator that characterizes the effectiveness of the activity of business subjects that function in different sectors and their related industries of the national economy.
The object of this publication covers the enterprise’s profitability calculated on revenue basis.
The subject matter of the study refers to the profitability on revenue from sales of products basis (profitability of revenue).
The article consistently substantiates the methods for analysis of revenue-based profitability and profitability on net revenue from sales of products basis. It highlights different options and models for analysis, thus binding the different aspects of the enterprise’s business. It determines the power and direction of the direct factors’ impact on the changes of profitability calculated on the basis of the total amount of revenue and the amount of net revenue from sales of products. It further substantiates the objectively existing relations and dependencies both between revenue-based profitability and the indicator ‘Costs per revenue of BGN 100’ (revenue effectiveness), that characterizes the effectiveness of the overall business, as well as those between profitability of sales and the indicator ‘Full cost per production of BGN 100’, that characterizes the effectiveness of the enterprises’ operations carrying out industrial business as their principal activity.
The author’s objective is to improve the methods for analysis of profitability calculated on revenue basis and net revenue from sales of products basis.
The profitability analysis is a typical example of external analysis. It is carried out by using data from the enterprises’ financial statements, which are public. The information obtained from the analysis is designed to meet the information needs of external users of information disclosed in the enterprises’ financial statements. The information obtained from the analysis enable them to make informed decisions for the relevant enterprise and their business contacts with them. The resultative analytical information is useful for the internal users – the financial management and the management of each enterprise in general, in order to elaborate and make informed, justified and efficient decisions for the development of its business, the achievement and maintenance of market and financial stability, as well as financial balance in short- and long-term perspective.