Profit and Profitability. Profit Planning. The Role of Profit in a Market Economy

Profit as the most important category of market relations performs a number of functions:
Firstly, profit is a criterion and indicator of the effectiveness of the enterprise.

Secondly, profit has a stimulating function. It is assigned the status of a goal, which predetermines the economic behavior of economic entities.

Profit is the main source of equity capital growth. Focusing on the amount of profit remaining at the disposal of the enterprise, decisions are made on the dividend and investment policy. Profit is a source of social benefits for members of the workforce.

Thirdly, profit is a source of income generation for budgets of various levels. It enters the budget in the form of taxes, as well as economic sanctions, and is used for various purposes, determined by the expenditure part of the budget and approved by law.

Considering the essence of profit, it should be noted its following characteristics:
1) profit is a form of income of an entrepreneur carrying out a certain type of activity;
2) profit acts as a form of income for an entrepreneur who has invested his capital to achieve a certain commercial success;
3) profit is not a guaranteed income of an entrepreneur who has invested his capital in a particular type of business;
4) profit does not characterize the entire income received in the course of entrepreneurial activity, but only that part of it that is "cleared" from the costs incurred for the implementation of this activity;
5) profit is a cost indicator, i.e. indicator expressed in monetary terms.

Taking into account the considered main characteristics of profit, its concept in the most generalized form can be formulated as follows: profit is the net income of an entrepreneur on invested capital, expressed in cash, characterizing his remuneration for the risk of doing business, which is the difference between total income and total expenses in the process of carrying out this activity.

The profit of the enterprise is the main goal of entrepreneurial activity. The main motive of any business, its main and ultimate goal is to increase the welfare of the owners of the enterprise. The characteristic of this growth is the amount of current and deferred income on invested capital, the source of which is the profit received.

The profit of the enterprise creates the basis for the economic development of the entire state. The mechanism of redistribution of enterprise profits through the tax system makes it possible to form the revenue side of the budgets of all levels, which enables the state to successfully carry out the functions assigned to it and the planned programs for the development of the economy.

The profit of an enterprise is a criterion for the effectiveness of a particular production activity. The individual level of profit of the enterprise in comparison with the industry shows the degree of ability of managers to successfully manage in a market economy.

The profit of the enterprise is the main internal source of the formation of the financial resources of the enterprise, ensuring its development. The higher the level of profit generation of the enterprise, the less, other things being equal, its need to attract financial resources from external sources and the higher the level of self-financing of its development, ensuring the achievement of the strategic goals of this development, increasing the competitive position of the enterprise in the market.

The profit of the enterprise is the main source of increasing its market value. The ability to self-increase the cost of capital is provided by capitalizing a part of the profit received by the enterprise, i.e. its direction to increase the assets of the enterprise. The higher the amount and level of capitalization of the profit received by the enterprise, the more the value of its net assets increases and, accordingly, the market value of the enterprise as a whole, determined during its sale, merger, absorption and in other cases.

The profit of an enterprise is the most important source of meeting the social needs of society. The social role of profit is manifested primarily in the fact that the funds transferred to the budgets serve as a source for the implementation of nationwide social programs.

The profit of the enterprise is the main protective mechanism that protects it from the threat of bankruptcy. Due to the capitalization of the received profit, the enterprise can quickly increase the share of highly liquid assets and restore solvency, as well as the share of own capital, with a corresponding decrease in the amount of borrowed funds used, i.e. increase financial stability, form reserve financial funds.

We can distinguish the following functions inherent in profit:
- expected profit is the basis for making investment decisions;
- the received profit is a measure of the success of the enterprise;
- a part of the received profit serves as a source of self-financing of development;
- part of the profit comes as a reward to the owners of capital.