Экономические науки/10.Экономика предприятия

D.e. s. Turylo А.М., d.e. s. Zinchenko О.А.

Technical university in Krivoy Rog, Ukraine

Approaches to management of profit quality and innovatization

In a market-oriented economy the profit is a key figure of the work assessment of any enterprise.

It requires that the company's management has to solve permanently a lot of important questions, namely what business model to choose, what volume of investments should be made into production for current and future development, what system of pricing and material encouragement of employers should be introduced at the enterprise, how to optimize the value of financing sources, etc.

Analysis of the recent researches and publications.

Works of the considerable number of native and foreign economists are devoted to the questions concerning definitions of subject matter, role, and functions of profit. In economic researches the questions concerning the profit put an emphasis on its quantitative indexes, and only the profit margin is characterized almost in all works. Actually the qualitative characteristic of the profit is not clearly understood by the economists.

Thus I. Blank emphasizes on the actual continuity of the “profit quality” category and considers it when determining the main results and forming the tasks of enterprise economic activities. In most works [1, p. 25, 501] the existence of the “profit quality” concept is only mentioned, and only some of these works contain particular aspects of its determination and measurement. It is noted thus in the work [1, p. 25] that “the profit quality” is a generalized characteristic of the structure of the business profit generation sources. Then the interpretation of low and high quality of profit is given. The high quality of operating profit is characterized by increasing of volume of output along with decreasing of the level of operating expenses etc., and the low quality – by escalation in prices for production with no increasing in its production and realization expressed in physical indicators [1]. O.Khisteva makes a certain quantitative assessment to the enterprise profit quality by putting into its ground financial approaches and coefficients [2].

Thus only few works on economics contain the existence of the “profit quality” concept. Much less scientific and literary works give consideration to the certain aspects of determination and measurement of the profit quality.

Presentation of the primary data for study. Any process and, in particular productive one, is basically oriented to the economical efficiency. For this reason, the profit quality represents on the one hand the quantitative estimation that is the value of enterprise operating results according to the purpose in view, and on the other hand qualitative characteristics of such result.

Management of the enterprise wants to receive not just some particular profit margin but also a higher level of its quality. The increasing of the profit quality is indented into determination of its economic margin through the efficient generation and distribution of enterprise profit. This purpose is implemented on the ground of:

1) rationalization of the financing sources of the production development;

2) innovatization of the enterprise [3];

3) creating a corresponding level of competitive capacity of the enterprise.

We are of the opinion that the “profit quality” definition should reflect the main essential aspects as well as the cause and effect features of this concept, in other words to reflect on a regular basis all changes in the development of the enterprise. It is necessary to take into consideration that the “profit quality” category comprises not only the stage of profit generation but also the stages of distribution and disposition of profit. It characterizes the operating, investment and financial profits.

In compliance with the above-mentioned provisions we offer the following definition of the “profit quality” concept.

“The profit quality” is the complex qualitative and quantitative enterprise profit characteristics connected firstly with stages of its generation, distribution and disposition, and secondly with indirect valuation of personnel qualification, organizational and technical production level as well as with their effective use.

Such determination of the “profit quality” category makes it possible to investigate it both on the quality and quantity sides. From a perspective of the qualitative evaluation this category characterizes the system of social and economic as well as technical and technological conditions for the development of the enterprise; in other words, for example, the higher the production innovatization level [3] and the better the system of its organization and management, the higher the profit quality under otherwise equal conditions.

As a practical matter the profit quality is reflected first of all on the organizational and technical level of the enterprise and its staff. But for the purposes of realization of high personnel, technical, and technological potentials with a maximum efficiency it is necessary to create the optimum system of social and economic relations at the enterprise which would harmonically reflect interests of all groups of employees at the enterprise and make it possible to achieve the best level of production resources utilization.

Quantitative assessment of the profit quality of the enterprise is the indicators system reflecting qualitative characteristics of the profit and which is represented by the relevant absolute, structure and index figures. We shall investigate them in the course of the follow-up studies.

Relying on such understanding of the “profit quality” category we offer for descriptive reasons the following approaches to the formation and disposal of the high level of the profit quality.

We have offered in the previous investigations [4, p. 32] to consider approaches to the definition of the profit quality of the enterprise at formation of its operating, investment and financial shares.

The highest level of the profit quality of the enterprise at formation of its operating share is gained on increasing the personnel qualification level, organizational and technical enterprise level, and the level of production resources use. In other words there is a direct proportion between the margin of profit quality and values of these indicators.

The highest level of the profit quality of the enterprise at formation of its investment share is gained on increasing of the structure progressivity level of enterprise investment income as well as the level of the market investment returns. A direct proportion between the margin of profit quality and values of these indicators is also represented.

The highest level of the profit quality of the enterprise at formation of its financial share is gained on increasing the progressivity level of enterprise capital structure and the level of the market financial return. It characterizes a direct proportion between the margin of profit quality and values of these indicators.

The highest level of the profit quality of the enterprise at its disposition is gained on increasing the enterprise’s social standards level, enterprise’s profit refinancing level, enterprise’s competitive capacity level. It is clear that when the social standards level at the enterprise is low it is sure to affect the motivation of workers and consequently the enterprise’s competitiveness. This thesis reflects a direct proportion between the margin profit quality and values of these indicators.

In the system of enterprise profit management under its quantitative evaluation it is necessary to take into account two main aspects: profit margin and profit quality. We offer to distinguish: profit management by its value (the profit margin herein is a controlled indicator) and profit management by its quality (in this case the profit quality is a controlled indicator).

As many modern economists think any object management consists of five stages: analysis, planning, creating of alternate decisions or determination of optimal solution, realization of one or several alternative solutions, control. Analysis is known as a primary and basic management stage, and on its ground all other stages are performed. That is why it is essential to develop methodical principles of quantitative estimation of enterprise profit quality.

This related indicators system includes absolute, structural, and dynamic indicators. These indicators can be calculated as actual, planned and standard ones. Together with level of detail they can be generalized, local or partial ones.

It should be noted that only subject to the provision of unity of all three groups of indicators the consistency and objectivity will be in evidence in the profit quality estimation.

Estimation of profit in its management by the main stages of profit flowing at the enterprise is a very important instant. These main stages are: profit generation, profit distribution and profit disposition.

Both objective and subjective factors have an impact on profit generation as a financial result of the enterprise activities. Among these factors there are: enterprise area, sector of national economy, form of ownership, enterprise’s innovatization level. We consider the production innovatization to be the most important concept providing the maximization of the profit margin and the profit quality, current and potential increasing of enterprise’s competitive capacity, and enhancement of economical efficiency. According to our definition the production innovatization represents an ongoing process of implication and introduction of innovations into the production. This process is a complex, systematic and based on quality changes in labor forces of production and production relations [3].

Enterprise’s innovatization management may be defined as activity characterized first of all by consistency and planning, and focused on estimation, introduction and effective use of innovations for the purposes of profit maximization and providing the tactical and strategic competitive capacity of industrial complex.

The development purposes of the enterprise are defined by the top management under the influence of external and internal factors depending on its strategy, and are the basis of creating of enterprise’s development objectives. Depending on strategy, purpose and objectives of enterprise development such types of profit as operating, investment and financial are generated. Thus it is reasonable to define the quality of operating profit, the quality of investment profit, and the quality of financial profit. We suggest the following common classification of the “profit quality” category according to the stages of profit flowing at the enterprise: “the quality of profit generation”, “the quality of profit distribution”, and “the quality of profit disposition”.

Conclusions of the investigation. The profit quality on the one hand reflects the quantitative estimation, namely the value of operating results of the enterprise in accordance with the purpose in view, and on the other hand, the quality characteristics of such results. The profit quality is a derived quantity of enterprise’s development conditions; that is, for example, the higher the production innovatization level and better the system of its organization and management, the higher the profit quality under otherwise equal conditions. The following general classification of the “profit quality” category was suggested: the quality of profit generation, the quality of profit distribution, and the quality of profit disposition. In this case the quality of operating, investment, and financial profit is being specified. The defined content of the “profit quality” term as well as the suggested methodical principles of quantitative estimation of the value of “profit quality” make it possible to perform profit management at the enterprise more thoroughly.

Bibliography:

1. Blank I. A. Profit Management. – 2-nd ed., ext. and add. – Kiev: Nika-Cenrte, Elga, 2002. – 752 p.

2. The profit quality and its influence on the sustainable development of the commercial enterprise: Dissert. abstract… Ph.D.: 08.07.05 / O. V. Khisteva; M. Tugan-Baranovskyi Donetsk State University of Economics and Trade, Donetsk, 2006. – 26 p.

3. Turylo A. M., Zinchenko O. A., Nusinov V. Ya. Economic appraisal of the iron-ore production innovatization: Monograph. – Kryvyi Rig: Publishing House, 2006.- 200 p.

4. Turylo A. M., Zinchenko O. A. Theoretical and methodological approaches to the enterprise profit definition as a financial category. - Topical issues of economics. – 2008. – No.3. – P. 32-41.