PROFIT AND PROFITABILITY

By looking at the cost indicator we can see how an enterprise is getting along. But it does not tell much about its performance from the standpoint of the interests of the country’s economy as a whole. For that we need to turn to other indicators, namely, profit and profitability. Profit is the difference between whole sale price and output cost; it is that part of the surplus product made by the labour force of an enterprise which remains at the disposal of the enterprise after its products have been sold or realized. Under socialism, the profit of an enterprise cannot become unearned income. It has nothing in common with capitalist profit, as it is used for the satisfaction of the needs of society as a whole and of its members. Compared with the cost indicator the profit indicator gives a more

complete picture of the performance of an enterprise. The effort to bring down the cost often conflicts with the effort to improve output quality. Additional outlays made by an enterprise to raise quality of its products may result in substantial savings in the exploitation of the products. For example, aircraft engines of improved design enable the country to save thousand of millions of roubles. But such additional outlays increase cost. If we judge the performance of this enterprise by cost only, we may get the

impression that it has become less efficient, as the cost output has increased. But if we judge its performance by the amount of profit it earns, we shall conclude, quite correctly, that its performance has improved: its profit increased since high-quality goods fetch a higher price. Thus profit, when it is due to improve quality of output, is to the advantage of both producer and customer. Needless to say, setting a target for profit does not make cost reduction less important. But the total sum of profits does not yet tell everything about the performance of an enterprise. To appraise that, one should also use the indicator of probability, which expresses the relationship between the amount of profit earned and the cost of the fixed assets it turnover.

Notes

Profit and profitability-----------------------прибыль и рентабельность

Cost indicator---------------------------------показатель стоимости

From the standpoint--------------------------с точки зрения

Wholesale price-----------------------------оптовая цена

The surplus product------------------------прибавочный продукт

At the disposal of---------------------------в распоряжении

As a whole-----------------------------------в целом

Output quality--------------------------качество выпускаемой продукции

Saving----------------------------------------экономия, сбережения

Cost reduction-------------------------------снижение стоимости

Fixed assets----------------------------------основной капитал

II. Ответьте письменно на следующие вопросы:

1. By what way can we see how an enterprise is getting on?

2. What is profit?

3. Does the profit indicator give a more complete picture of the performance of an enterprise?

4. At what conclusion shall we arrive if we judge its performance by the amount of profit it earns?

5. What does the indicator of probability express?

ВАРИАНТ №3

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