The content and objectives of profit enterprise
Earnings best reflects the financial performance of business activities, provides funding for expanded production, socio-economic development of the company, a source of material incentives for employees and the basis for calculation of indicators of investment attractiveness. Profit is the source of income of the state budget and in this capacity matches the interests of the state and business structures.
Noteworthy is the fact that profit occupies a central place in the overall system cost tools of economic management, because they all directly or indirectly related to profit. This includes credit, price, cost and other economic levers. In these circumstances, the profit is one of the main objects of Financial Management. It is therefore important to determine the types of income, classification are shown in Fig. 5.1.
The bulk of the profits the company gets from operating (core) activities. Not every company is engaged in financial and investment operations. But if they are present in the enterprise, expanding the range of sources of income formation.
Profit from ordinary activities before taxation - the total revenue obtained now from all activities (operating, investing, financial).
Margin (gross profit) is defined as the difference between the net revenue from sales and cost of production (variable costs).
Extraordinary income - the difference between revenues and expenses due to emergencies (natural disasters, fires, industrial accidents, etc.).
Net income is the amount remaining available to the company after-tax extraordinary loss and is subject to reallocation in the directions of use.
Thus, profit management - a complex multi-system transactions, which includes a minimum of three subsystems: the formation, distribution, use.
For each of these subsystems has its own specific objectives, tasks, tools to achieve them.
However, each of these subsystems is influenced by others. For example, the amount of profit generated in the first phase, determine the direction of its distribution. The greater the profit, the greater the problems of economic, technical and social terms, it can solve, distributing funds for specific areas of use. At the same time affects the efficiency of future opportunities to increase profits during its formation.
System approach to management profit research involves ways of subsystems together and influence the functioning of the whole system in some of its units. A simplified diagram of system approach to management profit shown in Fig. 5.2.
It should be noted that the system of profit will be optimal only when the objectives of each subsystem will be determined by global objectives of the whole enterprise.
In general, the profit is defined as the difference between the revenues and costs of production and marketing, taking into account losses from various business transactions. Thus, profit is formed by the interaction of many components.
The main objectives of profit are:
1. Identification reserves increase profits at the expense of productive activities, investment and financial transactions.
2. Identification reserves increase profits by optimizing fixed and variable costs, justify accounting policy, price policy, tax policy.
3. Evaluation of the profitability of industrial and commercial activities.
4. Determination of business risk.
5. Strengthening the competitive position of the company by increasing the efficiency of distribution and use of income.
The magnitude of the aggregate income affects many factors that must be considered in the management process. These factors can be divided into two groups: external, independent of the company, and internal, which may affect the company.
External factors are generally independent of entrepreneurship. The financial manager should take them into account in substantiating making. These include factors related to the general economic situation, with inflation, the specific individual commodity markets, with exposure to natural, geographic, transport and technical conditions for production and marketing.
Internal factors are the target of the influence of the enterprise management system and a source of increasing profits at the expense of their implementation in concrete action and implementation.