3. Essence of profitability.

Absolute amount of enterprise profit does not allow analyzing effectiveness of enterprise functioning or level of attractiveness of individual type of product.

Profitability is a relative index that characterizes the level of efficiency of enterprise work.

The following types of profitability are distinguished:

- Return on sales;

- Return on assets;

- Return on equity;

- Return on investment;

- Profitability of activity;

- Profitability of products.

Return on sales is calculated as the ratio of net profit to net revenue from sales and characterizes the efficiency of enterprise sales.

Return on assets is calculated as the ratio of net profit to average assets value and characterizes the efficiency of assets use.

Return on equity is calculated as the ratio of net profit to the average annual cost of equity and characterize efficiency of investment in this company.

Return on investment is calculated as the ratio of net profit and paid interest to the amount of personal and long-term debt capital for middle period. Shows, which return on equity have owners and holders of long-term debt.

Profitability of production is calculated as the ratio of profits from sales to the cost of products and characterizes economic activity profitability from operations.

Profitability of operational activity is measured as the ratio of operating income to operating expenses.

For joint-stock companies, whose common shares are traded publicly on stock exchanges, including partnerships that are in the process of issuing such shares, indexes of shares profitability should be calculated and analyzed.

Information on common shares can be found in the third section of report on the financial results of enterprises.

Net profit per one ordinary share is an index, which is calculated by dividing net profit or loss, which belongs to the owners of common shares, on average number of diluted shares.

Dividends per ordinary share - is an index, calculated by dividing the amount of dividends declared by the number of shares on which dividends are paid.

There are no set boundaries of profitability, and the main factors increasing profitability can be the following:

a) while assessing production profitability: increase of profit, reduce the cost of fixed assets and remains of normalized current assets;

b) while assessing the profitability of individual products: lower cost of products.

4. System of income distribution and mechanism of its use.

Profit of an enterprise is the subject of distribution, which is carried out in two stages.

The first stage is the distribution of profit (profit before tax) between enterprise and the state.

Size of income tax is computed on the basis of taxation and equals 25% of the income tax for most businesses in Ukraine.

Tax income (or income for tax purposes) is a profit for a certain period of time calculated by reducing the size of adjusted gross income on the amount of gross expenses and depreciation charges amount calculated according to tax records.

Accounting profit and tax profit in most cases will be different. Factors that cause these differences can be divided into two groups:

1. Persistent differences, which remain constant over time (can be explained by the rules of calculating income tax according to tax law of Ukraine). Examples of such differences are permanent costs, which are not directly related to production activities of enterprise (the cost of maintenance and operation of social infrastructure objects, costs for charitable purposes, payment of fines, penalties, which in accounting are included in operating costs while profit calculating). However, according to the Law of Ukraine "On taxation of enterprise profits" these costs do not belong to the total costs and are not excluded from gross income subject to taxation.

2. Time differences arise from differences in the time of revenues and expenses amount display in accounting and tax accounting. Usage of the principle of "first event" in tax accounting while calculating revenues and expenses leads to appearance of time differences.

The second stage – is the distribution of net profit.

Net income can be used for:

- Formation of reserve capital. The volume of annual fees set by statutory documents must be at least 5% of the net income.

- Increasing of statutory capital (profit reinvestment);

- Payment of dividends;

- Formation of retained earnings, which is a capitalized reserve of the company, which has no purpose. And can be used to pay for financing investment projects, acquisition of fixed assets, social development and other purposes.