Ryabenkov O. V.

acting chief of the planned-economic administration PJSC «Sumy Frunze NPO»

The methodological approach to the potential profitability of industrial enterprises assessment

In terms of the economic crises in Ukraine, expanding part of the enterprises that close down, in the industrial economy arises a question of detection and evaluation of the profitability potential for managerial decisions making. One of the most important tasks of the evaluation of the potential is to detect the profitability reserves in order to mobilize them to make up possible expenses which may be caused by considerable business risks. It’s necessary to work out a proper technique evaluation of the profitability potential.

The practice of the functioning of the domestic enterprises shows that there are current problems in the functioning of the economic units connected with sustaining unproductive expenses, increasing of the accounts receivable, contractor’s nonpayment for the received products, price changing, tariff escalating, low level of payback of fixed assets and rotation velocity of circulating assets, which lead to reduction of their activity’s effectiveness. That’s why there is a necessity of opportune detection of the manufacturing firms’ profitability reserves for a long-period outlook. Full usage of the reserves is a necessary condition of the maintenance of the financial economic sustainability of the enterprise in the market economy.

Development of the methodology of the evaluation of the manufacturing firms’ profitability potential and forming of the appropriate methodological instruments should be based on unique interpretation of the quintessence of the economic unit’s potential and its functional structure. Investigation methodology of profitability includes both narrow evaluation, which is based on determination of certain profitability indexes of production factors and capital, and general evaluation – based on integral evaluation of efficiency of the enterprise activity’s. Most widespread efficiency index is profitability of the enterprise activity in different interpretations.

In terms of the dynamic changes of the enterprise functioning some contradictions between profitability and liquidity, profitability and risk appear. The reasons for the contradiction between target indexes of profitability and liquidity are based on lack of liquid resources which are at enterprise’s disposal and on difference in the interests of the owners and creditors. An increase in liquid reserves (e.g. additional credit) for the purpose of reduction of risk, on the one hand, may lead to increase in liquidity, while on the other hand, it may lead to reduction of profit at the expense of payment of interest. Also it’s necessary to take into account that some amount of cash balance isn’t used in the production process and this amount doesn’t make profit. To achieve the goals of the enterprise it’s essential to choose one criterion: profitability or liquidity. But managerial decisions making is restricted by such fundamental factors as: changes of price, costs, sales volume and competitiveness. Therefore, we focused on evaluation of exactly these factors.

There is an evaluation approach which includes four steps to make a managerial decision concerning efficiency of the usage of the manufacturing firms’ profitability potential and ways of its development.

Step 1 – analysis and evaluation of the indexes, which characterize profitability potential of the enterprise according to such trends: the potential of increase in production and sales volumes; the potential of pricing; the potential of reduction of expenses. The aim of such analysis is to evaluate the efficiency of achieving goals of the enterprise in order to change (or to preserve) the strategy according to the mentioned trends. For each enterprise there is an individual set of strategic indexes of internal control. The range of indexes depends on the priorities of the strategic development. The criterion of the analysis of the indexes of profitability potential is adjusting them in accordance with target vectors of the enterprise (profit rate, cost standard, the rate of increase in sales volume, productive efficiency). The indicator of deviation factual indexes from planned make it possible to evaluate the size of deviation and find out the reason of its occurrence: mistakes in making strategic plans, deviations connected with unforeseen changes in conditions of the environment where the enterprise is functioning.

The results of analysis are used for making decisions connected with: revision and correction of the strategic plans; making decisions according to alternative kinds of activity: liquidation, reduction, expansion; revision of managerial actions in order to reach determined strategies.

Modeling of the process of information representation of profitability reserves of the enterprise is based on the principle of induction. This principle includes forming of an information model of a researched system in consecutive order from detailed to general representation of the potential. The whole process may be described by forming proper indexes, which have an individual structure. In general kind the information model unites the whole list of indexes according to the steps with the algorithm of computation.

Step 2 – modeling of the indexes of the profitability potential includes determination of the criteria, contingencies and models of optimization of the profitability of the enterprise.

Step 3 – evaluation of the risks for making decisions concerning the usage of profitability potential. The evaluation is suggested to be done according to such stages: development of the deterministic model of profit maximization of the enterprise, determination of the distribution laws by the elements of the profitability potential which are uncontrolled, determination of the distribution laws of the accidental parts by the controlled options of the firm’s profitability potential, production of the accidental scripts and implementation of the imitation model using method of the statistic tests, analysis of the results of risk’s evaluation for decision making concerning the profitability potential.

Step 4 – forming of the analytic information for profitability potential’s evaluation depending on the stage of the firm’s economic development. An approach of the firm’s profitability reserves determination by comparing expenditures and profits is based on the usage of integral index of the firm’s profitability potential.

An approach of the evaluation of the profitability potential of the manufacturing firm, which was introduced in the article, make it possible to form a qualitative database for making well-grounded managerial decisions and solving detected problems.