What is the enterprise profitability threshold? What does it show? Profitability threshold. Financial strength margin

The break-even point (profitability threshold) is such revenue (or quantity of products) that ensures full coverage of all variable and semi-fixed costs with zero profit. Any change in revenue at this point results in a profit or loss.

To calculate the profitability threshold, it is customary to divide costs into two components:

· Variable costs - increase in proportion to the increase in production volume (sales of goods).

· Fixed costs - do not depend on the number of products produced (goods sold) and whether the volume of operations grows or falls.

The value of the profitability threshold is of great interest to the lender, since he is interested in the question of the sustainability of the company and its ability to pay interest on the loan and the principal debt. The stability of an enterprise determines the margin of financial strength - the degree to which sales volumes exceed the profitability threshold.

Let us introduce the following notation:

Formula for calculating the profitability threshold in monetary terms:

PRd = V*Zpost/(V - Zper)

Formula for calculating the profitability threshold in physical terms (in units of products or goods):

PRn = Zpost / (C - ZSper)

The profitability threshold can be determined both graphically (see Fig. 1) and analytically.

Using the graphical method, the break-even point (profitability threshold) is found as follows:

1. find the value of fixed costs on the Y axis and plot the line of fixed costs on the graph, for which we draw a straight line parallel to the X axis;

2. select a point on the X axis, i.e. any value of sales volume, we calculate the value of total costs (fixed and variable) for this volume. We construct a straight line on the graph corresponding to this value;

3. We again select any value of sales volume on the X-axis and for it we find the amount of sales revenue.

We construct a straight line corresponding to this value.

The break-even point on the graph is the point of intersection of straight lines built according to the value of total costs and gross revenue (Fig. 1). At the break-even point, the revenue received by the enterprise is equal to its total costs, while the profit is zero. The amount of profit or loss is shaded. If a company sells products less than the threshold sales volume, then it suffers losses; if it sells more, it makes a profit.

Figure 1. Graphic determination of the break-even point (profitability threshold)

Profitability threshold = Fixed costs / Gross margin ratio

You can calculate the profitability threshold for both the entire enterprise and individual types of products or services.

A company begins to make a profit when actual revenue exceeds a threshold. The greater this excess, the greater the margin of financial strength of the enterprise and the greater the amount of profit.

How far the company is from the break-even point shows the margin of financial strength. This is the difference between the actual output and the output at the break-even point. The percentage ratio of the financial safety margin to the actual volume is often calculated. This value shows by how many percent the sales volume can be reduced in order for the company to avoid losses.

Let us introduce the following notation:

Formula for financial safety margin in monetary terms:

ZPd = (B -Tbd)/B * 100%,

where ZPd is the margin of financial strength in monetary terms.

Formula for financial safety margin in physical terms:

ZPn = (Rn -Tbn)/Rn * 100%,

where ZPn is the margin of financial strength in physical terms.

The margin of safety changes rapidly near the break-even point and more slowly as it moves away from it. A good idea of ​​the nature of this change can be obtained by plotting the dependence of the safety margin on the sales volume.

More on topic 5. The concept of the profitability threshold, its calculation and graphical construction. Determining the margin of financial strength of an enterprise:

1. Calculation of marginal income, profitability threshold and financial safety margin
2. 5.5. Calculation of marginal income, threshold for profitability of sales of goods (break-even point) and margin of financial strength

INTRODUCTION

To make management decisions and plan the work of an enterprise for a certain period, the management team of the company must have reliable and useful information about the state of the business entity. Calculation of indicators of the profitability threshold, margin of financial stability, as well as profitability of sales is necessary for managers to plan the future activities of the company and make management decisions.

The relevance of the topic of this work is determined by the fact that analysis of the profitability threshold, profitability in terms of turnover and assessment of the financial stability margin allow us to draw fairly confident and well-founded conclusions about the state of affairs in the organization and the effectiveness of its activities. This is especially important if the company has a large number of competitors, and the sector of the economy in which the business entity operates is unstable.

The purpose of the work is to study the methodology for calculating the threshold for profitability of sales of goods, determining the profitability of turnover, and assessing the margin of financial stability of a commercial enterprise.

The objectives of this work include:

Determine the need to calculate indicators of the threshold of profitability and financial stability;

Study the methodology for calculating the profitability threshold and its significance for analyzing the economic activities of an enterprise;

Consider the definition of profitability in terms of turnover and financial stability;

Analyze the margin of financial strength and the threshold of profitability using the materials of Kamelia LLC.

The object of study is Camellia LLC, which is a commercial enterprise, the purpose of which, as stated in the Charter, is to make a profit. The scope of activity of this business entity is retail trade in clothing and footwear. "Kamelia" is a chain of stores operating under franchising in the city of Rostov-on-Don.

The company in question has its share of the market and is constantly striving to expand the network of its stores and fully satisfy customer demand.

METHODOLOGY FOR CALCULATING INDICATORS OF THE PROFITABILITY THRESHOLD AND FINANCIAL STABILITY RESERVE

The essence of the threshold of profitability and financial stability, calculation of the threshold of profitability

Each enterprise in its commercial activities strives to obtain the greatest profit and reduce its costs. For an organization to be profitable, its activities must be profitable, i.e. revenue from the sale of products produced (or sold, if it is a trading enterprise) by the company must compensate for the costs and expenses of the enterprise.

In a modern competitive environment, without a thorough analysis of its activities and its planning on the basis of this analysis, it is impossible for any business entity to function. In a modern capitalist economy, in order to successfully gain a foothold in the market, an enterprise must plan its performance before each reporting period. Of course, the goal of any commercial business entity is profit. It also serves, undoubtedly, as the root cause of any commercial activity in principle. But a company can plan its profit only based on other economic indicators, such as fixed and variable costs, etc.

Calculating the indicators of the profitability threshold and the margin of financial strength allows the organization's management to understand what volume of products it needs to produce and sell in order to break even, i.e. fully recoup your costs. Further, based on these calculated data, the company's management can plan product output and sales prices in order to obtain the profit that the organization expects. The margin of financial strength allows you to assess how far the company has moved from the profitability threshold to the profit zone. The greater the margin of financial strength, the more prepared the enterprise is for various unfavorable economic phenomena. In the event of any unforeseen disruptions in the organization's work, or deterioration of the external environment, the company has a chance to remain in the profit zone or the losses will be less than they could be if the organization was close to the loss zone and the margin of financial strength was would be small.

The profitability threshold (break-even point, critical point, critical volume of production (sales)) is the volume of sales of a company at which sales revenue fully covers all costs of production and sales of products. To determine this point, regardless of the methodology used, it is necessary first of all to divide the projected costs into fixed and variable.

Fixed costs are costs whose value does not change with changes in the degree of utilization of production capacity, or changes in production volume (rent, communication services, administration salaries, etc.).

Variable costs increase or decrease in proportion to the volume of production (provision of services, turnover), i.e. depend on the business activity of the organization. Both production and non-production costs can be variable. Examples of manufacturing variable costs include direct material costs, direct labor costs, auxiliary materials costs, and purchased intermediate goods costs.

The practical benefit of the proposed division of costs into fixed and variable (the value of mixed costs can be neglected or proportionally attributed to fixed and variable costs) is as follows:

First, it is possible to determine exactly the conditions for a firm to stop producing (if the firm does not cover average variable costs, then it must stop producing).

Secondly, it is possible to solve the problem of maximizing profit and rationalizing its dynamics for the given parameters of the company through a relative reduction in certain costs.

Thirdly, this division of costs makes it possible to determine the minimum volume of production and sales of products at which the business breaks even (profitability threshold).

To calculate the profitability threshold, the following are used:

Mathematical method (equation method);

Marginal income method (gross profit);

Graphic method./7, p. 215/

Mathematical method (equation method). To calculate the profitability threshold, first write down the formula for calculating the profit of an enterprise:

P = VR - Zpost. - Zper, (1.1)

where P is profit;

VR - sales revenue;

Zpost - fixed costs;

Zper - variable costs

Or this formula may look like this:

P = C.unit*X - Zper.unit*X - Zpost, (1.2)

where C.unit is the price per unit of production;

Zper.ed - variable costs per unit of production;

X - sales volume at the break-even point, pcs.

Then, on the left side of the equation, the sales volume (X) is taken out of brackets, and the right side - profit - is equated to zero (since the purpose of this calculation is to determine the point where the enterprise has no profit):

X*(C.unit - Zper.unit) - Zpost = 0, (1.3)

In this case, marginal income per unit of production is formed in brackets. Marginal income is the difference between revenue from sales of products (works, services, goods) and variable costs. The following is the final formula for calculating the equilibrium point:

X = Zpost/MDed, (1.4)

where MDed is the marginal income per unit of production.

The marginal income (gross profit) method is an alternative to the mathematical method.

Marginal income includes profit and fixed costs. The organization must sell its products (goods) in such a way that the resulting marginal income covers fixed costs and makes a profit. When the marginal income sufficient to cover fixed costs is achieved, the equilibrium point is reached.

An alternative calculation formula is:

P = MD - Zpost, (1.5)

Since there is no profit at the equilibrium point, the formula is transformed as follows:

MDed*OR = Zpost, (1.6)

where OR is the volume of sales.

The OP will be the threshold for profitability. The formula for calculating the profitability threshold in this case will look like:

PR = Zpost/MDed, (1.7)

To make long-term decisions, it is useful to calculate the ratio of marginal income and sales revenue, i.e. determination of marginal income as a percentage of revenue. To do this, perform the following calculation:

(MD/VR)*100%, (1.8)

Thus, having planned revenue from product sales, you can determine the size of the expected marginal income.

"It must be taken into account that the above formulas and illustrated dependencies are valid only for a certain scale base. Outside this range, the analyzed indicators (total fixed costs, unit sales price and specific variable costs) are no longer considered constant. Any results of calculations using the above formulas and made Based on these calculations, the conclusions will be incorrect."/7, p. 218/

Graphic method. The break-even point can be determined using this method.

The graph consists of four straight lines - a straight line describing the behavior of fixed costs, variable costs, total costs and revenue.

Fig.1.1

The abscissa axis shows the volume of sales (trade turnover) in natural units of measurement, and the ordinate axis shows costs and income in monetary terms. The point of intersection of direct total costs and sales revenue will indicate the state of equilibrium.

It must be borne in mind that the analysis techniques discussed above can only be applied when making short-term decisions. Firstly, the development of recommendations for the long term cannot be carried out with their help. Secondly, analysis of break-even production will give reliable results if the following conditions and ratios are met:

Variable costs and sales revenue have a linear relationship with production levels;

Labor productivity does not vary within a scale base;

Unit variable costs and prices remain unchanged throughout the entire planning period;

The product structure does not change during the planning period;

The behavior of fixed and variable costs can be measured accurately;

At the end of the analyzed period, the enterprise has no inventories of finished products (or they are insignificant), i.e. sales volume corresponds to production volume.

Failure to meet even one of these conditions may lead to erroneous results.

The company must necessarily pass the threshold of profitability and take into account that after the period of increasing the mass of profit, a period will inevitably come when, in order to continue production (increase in output), it will simply be necessary to sharply increase fixed costs, which will inevitably result in a reduction in profits received in the short term.

When making a specific decision on the volume of production, an entrepreneur should take these conclusions into account.

Which fully covers all expenses of a particular corporation. It should be taken into account that this company does not make a profit, but at the same time it does not remain at a loss. In other words, we can say that this is a zero indicator, which is a sign that the enterprise is operating, but at the same time there is only a “give-receive” turnover of money, without leaks and revenue.

Pure theory

Drawing an analogy with mathematics, without which it is extremely difficult to imagine an economy, we come to the conclusion that the profitability threshold is zero. Such a borderline value is neither a good sign nor a bad sign. Which way things will move next depends on the specific situation. If the enterprise's next transaction is successful, then the profitability threshold will be exceeded, i.e., revenue will be received. If the deal fails or fails for other reasons, this indicator will be below zero, which means working at a loss.

Let's do a quick calculation

It should also be noted that the profitability threshold is the sum of the components with which it is calculated. First, those that do not depend on production volumes are determined. These include renting premises, equipment maintenance, employee salaries, etc. Afterwards, variable expenses are calculated. They depend on the volume of products produced, and also subsequently affect profits.

How things work in practice

Modern lenders who support small and large enterprises always link together such concepts as the profitability threshold and The explanation is much simpler than it sounds: this means that the enterprise’s income exceeds this very zero threshold, which shows that the work is not being carried out at a loss . After all, it is important for every sponsor to know that the company will be able not only to pay interest on the use of loan funds, but also to repay the principal debt within the agreed period.

Formulas and calculations

Now let's look at how the threshold itself is seen; it is extremely simple:

• revenue x / revenue - variable costs.

Using these indicators, it is easiest to calculate the viability of an enterprise in financial terms. If we consider the profitability threshold from the so-called natural point of view, then we derive another formula:

• fixed costs/revenue per unit of production - costs per unit of production.

Some people find it easier to navigate through the analysis of this data.

Other options for determining profitability

When considering this economic equivalent in the form of a graph, it becomes clear that an enterprise achieves its profitability when the income line crosses zero and rises above gross costs. At this stage there can be no losses, the indicator can only grow. The profitability threshold is a percentage indicator that indicates the use of funds in the company. It is also sometimes expressed as the profit per unit of funds invested for it. This information may be available to the management of the company, as well as to banks and lenders that cooperate with it.

- this is the sales volume at which the company can cover all its expenses without making a profit. The term is often used. In turn, how profit grows with changes in revenue.

To calculate the profitability threshold, it is customary to divide costs into two components:

• - increase in proportion to the increase in production volume (sales of goods).
• - do not depend on the number of products produced (goods sold) and on whether the volume of operations grows or falls.

The value of the profitability threshold is of great interest to the lender, since he is interested in the question of the sustainability of the company and its ability to pay interest on the loan and the principal debt. The sustainability of an enterprise is determined by the degree to which sales volumes exceed the profitability threshold.

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Let us introduce the following notation:

Formula for calculating the profitability threshold in monetary terms:

PRd = V*Zpost/(V - Zper)

Formula for calculating the profitability threshold in physical terms (in units of products or goods):

PRn = Zpost / (C - ZSper)

In the figure below, fixed costs are 300, variable costs per unit are 10, price is 25, profitability threshold (break-even point) PRn = 20 pieces.

When the profitability threshold is reached, the income line crosses and goes above the line of total (gross) costs, the profit line crosses 0 - it moves from the loss zone to the profit zone.

Profitability is a relative measure of profitability and is usually expressed as a percentage or profit per unit of investment. In this regard, it is interesting to see what the profitability and cost lines look like when converted to a unit of output.

As in the previous figure, fixed costs are 300, variable costs per unit of production are 10, price is 25, profitability threshold (break-even point) PRn = 20 pieces.

When recalculated per unit of production, we see that some constant quantities have turned into variables and vice versa. Some straight lines turned into curves.

The graph shows that:

• As volume increases, a smaller and smaller share of fixed costs per unit of production is accounted for. Therefore, the fixed cost line goes down.
• The proportion of variable costs is constant for each unit of production.
• The total cost per unit of production (cost) decreases.
• With a production volume of 20 pcs. the cost line crosses the price line (cost equals price) and goes below it.
• Accordingly, the profit line passes through 0, the profit becomes positive.
• The fixed cost line intersects the line (), i.e. marginal income equals fixed costs. Next, the marginal profit line goes above the fixed cost line - a profit is formed.

Excel spreadsheets are useful for quickly calculating options and assessing the impact of different cost-price ratios.

6. General characteristics of the types of market structures (perfect competition, monopolistic competition, oligopoly, monopoly)

7. Indicators of national production. Gross domestic product, gross national income and net national income. Nominal and real GDP.

8. Indicators of the general price level (price indices).

9. Aggregate demand and aggregate supply. Macroeconomic equilibrium.

Macroeconomic equilibrium

10. Inflation, its definition, types. Mechanisms, causes and consequences of inflation. Anti-inflationary policy of the state.

11. Characteristics of the labor market. Concept and types of unemployment. The Phillips curve and its economic meaning.

12. Economic growth. Main types and factors of economic growth.

13. Cyclicity as a pattern of economic development. Types of cycles.

14. The concept of “Finance”. Socio-economic essence and functions of finance.

15. Contents and principles of state financial policy

16. Financial system of the state

17. State budget of the Russian Federation and its functions

18. Composition and structure of income of the federal, regional and local budgets

Federal budget revenues.

Revenues of the budgets of the constituent entities of the Russian Federation.

19. Budget deficit and methods of covering it

20. Federal taxes

21. Taxes of the subjects of the Russian Federation.

22. Local taxes and fees

23. The essence and functions of state credit. Classification of government loans.

24. Public debt. Internal and external loans

25. Classification of budget expenditures of the Russian Federation

26. Budget structure and budget system of the Russian Federation

27. Budget process in the Russian Federation

28. Extra-budgetary special funds of the state

Pension Fund of the Russian Federation

Social Insurance Fund of the Russian Federation

Compulsory Health Insurance Fund

29. Financial control.

30. Enterprise costs for production and revenue

31. Enterprise profit. Planning and directions for using profits.

34. Composition and structure of income of the federal, regional, local budgets

37. Methodological tools for assessing the value of money over time

38. Methods for analyzing the financial condition of an enterprise

Basic methods of analysis

39. Analysis of liquidity (solvency) and creditworthiness of the enterprise.

40. Analysis of the financial stability of the enterprise

41. Estimation of the cost of capital. Weighting by book value and market value.

42. Financial reports (balance sheet, income statement, cash plan, other standardized reports)

43. Effect of financial leverage, financial risk

44. Determination of the profitability threshold (break-even production).

45. The effect of operating leverage, entrepreneurial risk

46. ​​Integrated operational management of current assets and short-term liabilities.

47 Inventory management

48 Accounts receivable management

49 Short-term and long-term financial planning management

50 General principles of enterprise cash flow management

Enterprise Cash Flow Statement

2. Analysis of the enterprise’s cash flows in the previous period - identifying the level of sufficiency in the formation of funds, the efficiency of their use

51. Cash flow analysis methods

52. Cash flow planning and payment calendar development

53. Synchronization and optimization of enterprise cash flows

54. Diagnosis of enterprise bankruptcy

55 Dividend policy of the company, repurchase and splitting of shares.

56. Analysis of the effectiveness of investment projects.

57. Types and features of foreign direct investment (FDI) in Russia

58 Portfolio foreign investments in Russia

59. Risk and return: portfolio theory. Alternative "risk-return" in financial management.

60. Financial risk management methods

61. Hedging financial risk. Hedging instruments.

62. Insurance, functions of insurance, characteristics of types of insurance

63 The role and place of the securities market in the financial system of the state

64. Bonds as a tool for debt financing.

65. Operation of stock exchanges, professional participants of stock exchanges

66. Ordinary shares as an instrument of own financing

67 Derivatives

68 Basic principles of fundamental and technical analysis of the stock market

69 Corporate securities market in Russia

70 The concept of money supply and monetary base. 89 The concept of “money turnover”, its content and structure.

71 The essence of loans, its functions

72 The concept of the currency system and its features at the present stage. Convertible currency and its types.

73 Characteristics of the elements of the credit system, its structure

Structure of the credit system

74 Tasks and functions of central banks

75 The concept of loan and bank interest

76 Active operations of commercial banks

77 Passive operations of commercial banks

78. Information security in financial systems

79. Ais in insurance

80 Ais in the tax authorities

81. Information technologies in the stock exchange business.

82. Ais and ait at enterprises

83. Ais in jars

44. Determination of the profitability threshold (break-even production).

Profitability threshold - This is such revenue from sales at which the enterprise no longer has losses, but still does not have profits. The gross margin is exactly enough to cover fixed costs, and Pr is zero.

Profitability threshold (break-even point, critical point, critical volume of production (sales)) - this is the sales volume of the company at which sales revenue fully covers all costs for production and sales of products. To determine this point, regardless of the methodology used, it is necessary first of all to divide the projected costs into fixed and variable.

The practical benefit of the proposed division of costs into fixed and variable (the value of mixed costs can be neglected or proportionally attributed to fixed and variable costs) is as follows:

Firstly, it is possible to determine exactly the conditions for the firm to cease production (if the firm does not recoup average variable costs, then it must stop producing).

Secondly, it is possible to solve the problem of maximizing profit and rationalizing its dynamics for the given parameters of the company through a relative reduction in certain costs.

Thirdly, this division of costs makes it possible to determine the minimum volume of production and sales of products at which break-even of the business is achieved (profitability threshold), and to show how much the actual volume of production exceeds this indicator (the firm’s financial safety margin) .

The profitability threshold is determined as revenue from sales, in which the enterprise no longer has losses, but does not receive profits, i.e. the financial average from sales after reimbursement of variable costs is only sufficient to cover fixed costs and Pr is equal to zero.

Break-even point in physical terms for the production and sale of a specific product ( T b ) is determined by the ratio of all fixed costs for the production and sale of a specific product ( Z fast ) to the difference between price (revenue) ( C ) and variable costs per unit of product ( Z beat lane ):

Break-even point in value terms is defined as the product of the critical volume of production in physical terms and the price of a unit of production.

Calculation of the profitability threshold is widely used when planning profits and determining the financial state of an enterprise. Two rules useful for an entrepreneur:

1. It is necessary to strive for a position where revenue exceeds the profitability threshold, and produce Products in kind that exceed their threshold value. At the same time, the company's profits will increase.

2. It should be remembered that the closer the industry is to the profitability threshold, the greater the influence of the control lever, and vice versa. This means that there is a certain limit of exceeding the profitability threshold, which must inevitably be followed by a jump in fixed costs (new labor, new premises, increased costs of enterprise management).

The company must necessarily pass the threshold of profitability and take into account that after the period of increasing the mass of profit, a period will inevitably come when, in order to continue production (increase in product output), it will simply be necessary to sharply increase fixed costs, which will inevitably result in a reduction in profits received in the short term .

When making a specific decision on the volume of production, an entrepreneur should take these conclusions into account.

Pr = Gross margin – Fixed costs = 0 or, which is the same:

Pr = Profitability threshold * gross margin in relative terms to revenue - constant. Costs=0

From the last formula we obtain the value of the profitability threshold:

Rent threshold = Post. Costs / Gross margin in relative terms to revenue

In this regard, let us note three most useful points for a financier.

First. Having determined what quantity of goods produced corresponds, at given selling prices, to the profitability threshold, you receive a threshold (critical) value for the volume of production (in pieces, etc.). It is unprofitable for the enterprise to produce below this quantity: it will cost itself more. The formulas usually used are:

There is, however, a nuance here. The threshold value of production volume, calculated by formula 1, coincides with that value calculated by formula 2, only when we are talking about one single person who is “forced” to cover all the fixed costs of the enterprise with its sales revenue, or when calculations are made for one isolated project. But if it is intended to produce several Products, then the calculation of the volume of production that ensures break-even, for example, Ta No. 1, is most often carried out according to a formula that takes into account the role of this Ta in the total sales revenue and, thus, its share in fixed costs. Then instead of formula 2 use formula 3:

Second. Having passed the profitability threshold, the company has an additional amount of gross margin for each additional unit of Ta. Naturally, the amount of profit also increases.

To determine the amount of profit after passing the profitability threshold, it is enough to multiply the number of Ta sold in excess of the threshold production volume by the specific value of the gross margin “sitting” in each unit of Ta sold:

Third. As already noted, the strength of the operating leverage is maximum near the profitability threshold and decreases as sales revenue and profit grow, since the share of fixed costs in the total decreases - and so on until the next “jump” in fixed costs.