Enhanced models for production capital profitability analysis
Improved models for analysis of the rate of return manufacturing capital
Abstract
Abstract: Production capital profitability is a key indicator describing the efficiency of industrial enterprises’ operating activity. Production capital comprises the assets that are directly used in the enterprises’ production activity. Such assets generate profits, which is, per se, the profit from sales of goods. Namely the percentage expression of this profit to the average amount of the production assets shows the production capital profitability.
Production capital profitability is considered a separate object of the analysis.
This study highlights different models for analysis of production capital profitability. It identifies the impact of the system of direct factors on the formation and dynamics of this key business indicator. Factors may be classified as follows: changes in sales profitability and changes in the production capital turnover ratio; changes in the absorption rate of fixed tangible assets and changes in the short-term asset load ratio; changes in the volume and range of sold products and changes in the net sales prices of goods; changes in cash inflows from clients and changes in the receivables from sales.
The impact of some other important factors on the dynamics of production capital profitability is also of interest. Here, we speak, for example, about the time period for collection of receivables from clients, the evaluation of the production assets, the age structure of fixed tangible assets, the level of fitness of these assets, the enterprise’s amortization policy, etc.
This study is aimed at achieving extended models for analysis of production capital profitability allowing us to identify and evaluate the power and the direction of direct factors’ impact on the dynamics of this indicator. The information obtained from the analysis is useful for the management to make timely decisions for the optimization of the structure of production and sales, for accelerating the collection of receivables from clients, for solvency and liquidity, as well as for achieving and maintaining market stability and financial equilibrium of industrial enterprises in operating and strategic aspect.
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