International Journal of Mechanical Engineering and Technology (IJMET)
Volume 10, Issue 01, January 2019, pp. 1171-1182, Article ID: IJMET_10_01_119
Available online at http://www.iaeme.com/ijmet/issues.asp?JType=IJMET&VType=10&IType=1
ISSN Print: 0976-6340 and ISSN Online: 0976-6359
© IAEME Publication
Scopus Indexed
COMMERCIAL ENTERPRISE OPERATION
EFFECTIVENESS’ INCREASE DUE TO THE
DEVELOPMENT AND IMPLEMENTATION OF
PROPOSALS ON THE PROFIT MARKUP AND
DISTRIBUTION
Yu.S. Berdova,
Senior Lecturer, Department of Business Informatics and Mathematics, Industrial University
of Tyumen (38, Volodarsky Str., Tyumen, 625000 Russia.
N.B. Panchenko,
Senior Lecturer, Department of Business Informatics and Mathematics, Industrial University
of Tyumen (38, Volodarsky Str., Tyumen, 625000 Russia
ABSTRACT
The dynamics analysis of the commercial enterprise profit was carried out. The
main activities of this enterprise are business process automation, software sales, cash
register equipment and expendable material sales. The structure of profit distribution
during the reporting period was described. The main directions of profit optimization
in the planning period were found out and characterized according to the analysis of
factors which influence the level and dynamics of the commercial enterprise profit.
Keywords: profit distribution, profit factor analysis, main resulting rates of a
commercial enterprise performance, profit optimization directions, commercial
enterprise profit.
Cite this Article, Yu.S. Berdova and N.B. Panchenko, Commercial Enterprise
Operation Effectiveness’ Increase Due to the Development and Implementation of
Proposals on the Profit Markup and Distribution, International Journal of Mechanical
Engineering and Technology, 10(01), 2019, pp. 1171-1182.
http://www.iaeme.com/IJMET/issues.asp?JType=IJMET&VType=10&IType=1
1. INTRODUCTION
The financial results of the company are characterized by the sum of the profit and
profitability level. Profit and profitability are complex indicators. Their value depends on the
quantity, quality and sales’ cost, the amount of production means [5].
Practical aspects of planning and distribution of a commercial enterprise profit are
considered on the example of the subject of research, the main directions of which are:
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Commercial Enterprise Operation Effectiveness’ Increase Due to the Development and
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automation of business processes, software sale, cash register equipment and expendable
material sales.
The main resulting performance rates of the enterprise in question are presented in table 1.
Table 1 The main resulting rates of a commercial enterprise performance in 2015-2017, RUB in
thousand
rates
2015
2016
2017
Revenue
231,528
257,209
217,133
Cost of revenue
153,631
158,119
130,159
Gross profit
77,897
99,090
86,974
Sales cost
350
5,439
4,902
Administrative costs
376
6,107
4,103
Sales (loss) profit
77,171
87,544
77,969
Interest receivable
0
0
0
Interest payable
0
410
415
Nonoperating revenues
1,242
5,232
3,328
Other expenses
1,724
11,236
8,705
Pre-tax profit
76,689
81,130
72,177
Income tax
15,338
17,037
14,435
Net profit
61,351
64,093
57,742
In 2016, there was a trade receipt increase by 25,681,000 rubles, which was 1% against
rates in 2015. The cost of revenue increased by 4,488,000 rubles for the same period (or 2.9%
against rates in 2015).
In 2017 the profit has decreased in comparison with the previous years, despite the cost
reduction of services’ provision. The observed trend of profit decrease and costs’ increase
may indicate the inefficient management of financial flows.
There is a reduction in the enterprise activities in all major areas during the period under
consideration. In 2017, trade receipt recession was 40,076,000 rubles or 15.6% in comparison
with the previous year rates, gross profit decreased by 12,116,000 rubles or by 12.2%, net
profit was down by 6,351,000 rubles or by 9.9%.
The enterprise profit dynamics is illustrated in Figure 1.
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Yu.S. Berdova and N.B. Panchenko
Rates, RUB in 120000
thousand.
100000
Gross profit
80000
Sales profit
60000
Pre-tax profit
40000
Net profit
20000
0
2015
2016
2017
Period, year
Figure 1 Commercial enterprise profit in 2015 – 2017
In 2016 the gross profit of the subject of research increased by 27.2% in comparison with
the previous year. The growth of the company's costs by almost 1.5 times led to a slight
increase in net profit over the same period (4.5%).
In 2017 cost reduction rate excess over the trade receipt rate reduction led to a 9.9%
decrease in profits. The enterprise has a general taxation system. The object of taxation is
income, which is reduced by the amount of expenses.
Relative ratio of enterprise’s efficiency, presented in the form of profit share in the trade
turnover for the reporting period is of main interest in the course of analysis (Table 2).
Table 2 Relative ratio of commercial enterprise’s efficiency in 2016 - 2017.
Rates
Gross revenue from sales, %
to the turnover
Circulation cost,
% to the turnover
Sales profit,
% to the turnover
Pre-tax profit,
% to the turnover
Net profit,
% to the turnover
Absolute
Rate of
variation, %
increase, %
40,1
1,5
4,0
4,5
4,1
-0,3
-7,6
34,0
35,9
1,9
5,5
31,5
33,2
1,7
5,.4
24,9
26,6
1,7
6,7
2016
2017
38,5
There was an increase of the profit share in the total turnover for the period, at the
enterprise in question in 2017. Gross profit share in the trade turnover of the enterprise in
question increased from 38.5% to 40.1% during the period under consideration. The level of
gross costs decreased from 4.5% to 4.1%. The increase in gross profit in the turnover structure
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led to an increase in the profit from sales’ share from 34.0% to 35.9%. The net profit share in
the trade turnover also increased from 24.9% to 26.6%.
The fines for violation of the current tax system, settlements with budget and non-budget
funds and other mandatory payments are payed from the net profit[3].
Table 3 provides information on the rate of the income tax share change in the structure of
the main resulting rates of the enterprise performance in 2016–2017.
Table 3 The income tax share in the resulting rates of the enterprise performance in 2016 - 2017, %
Rates
Profit tax share in the trade
turnover
Profit tax share in the gross
receipt
Absolute
Rate of
variation, %
increase, %
6,6482
0,02
0,37
17,194
-2,50
-12,68
2016
2017
6,6239
19,69
The profit tax share in the turnover of the enterprise in question increased by 0.37% in
2017. This is due to the growth of taxable profit amount. The income tax share decreased by
2.5% to 17.19% in the structure of gross receipt.
Insurance premium payments and property tax are among the expenses which decrease the
tax base of the profit tax. The organizations’ property tax refers to regional taxes and is a
stable source of income for the Russian Federation budget [3].
Subjects of taxation are movable and real property (including property assigned for
temporary possession, use, disposal, confidential management, introduced in joint activities or
obtained under a concession agreement), recorded on the balance sheet as fixed assets in the
manner prescribed for accounting. The tax base is defined as the average annual value of
property recognized as a taxable item [2].
2. METHODOLOGY
The main profit distribution directions of the analyzed commercial enterprise are shown in
table 4.
Table 4 Enterprise’s net profit distribution in 2016 - 2017, RUB in thousand
Rates
Net profit at enterprise’s
disposal
2016
2017
64,093
57,742
Absolute
Rate of
variation, %
increase, %
-6,351
-9,91
Profit disposition:
Distributed profit
26,278
25,984
-294
-1,12
Non-distributed profit
37,815
31,758
-6,057
-16,02
The change in the ratios of the profit distribution directions of the subject of research in
2017 is reflected in Figure 2.
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Rates, RUB. in
thousand 80000
60000
37815
31758
26278
25984
40000
20000
Period, year
0
2016
Distributed profit
2017
Undistributed profit
Figure 2 The profit remaining at the disposal of the enterprise in 2016 - 2017.
The structure of the enterprise profit distribution in the main areas in 2017 is shown in
Table 5.
Table 5 The directions of enterprise profit distribution in 2017
Rates
Absolute variation, % Rate of increase, %
payments to participants
16,000
62
other payment at the expense of net profit
2,550
10
profit for enterprise development
7,434
28
total distributed profit
25,984
100
The structure of the profit distribution in the reporting period is shown in Figure 3.
Figure 3 The structure of the enterprise profit distribution in 2017
Thus, there was an increase in the share of distributed profits from 41% to 45% in the year
under review. Consequently, non-distributed profit share decreased and amounted to 55% in
2017. The main direction of profit distribution in the year under review is payments to the
company's participants.
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One of the main factors, determining the profitability of a trade enterprise, is trade
turnover.
The quarterly dynamics of enterprise’s trade turnover for the analyzed period is shown in
Figure 4.
Rates, RUB. in
thousand
100000
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
1
2
3
4
квартал квартал квартал квартал
2016 год
Period, year
2017 год
Figure 4 Quarterly dynamics of the enterprise's trade turnover in 2016 - 2017
3. RESULTS
According to the data presented graphically, it is clear that an annual turnover increase of the
enterprise trade is observed in the second and third quarter. At the same time, both in 2016
and in 2017, the fourth quarter has the lowest value of the trade turnover in comparison with
the same rates for other time intervals.
Evaluation of factors’ influence on the profit level of the enterprise is carried out by
means of factor analysis. The impact of such factors as trade turnover, gross income level, tax
level and other mandatory payments which are levied at the expense of gross receipt,
distribution costs’ level, the change in financial results due to sale of fixed assets, other
income and expenses are estimated. The final change in the net profit of a commercial
enterprise for the period under review is the sum of profit changes under the influence of each
of the listed factors [5].
The results of the factor analysis are given in table 6.
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Table 6 The influence of the factors on a commercial enterprise’s net profit change in 2016, RUB in
thousand
Factor
Influence in revenue trends
Trade turnover change
-13,640
Gross receipt level change, in % to the
3,323
turnover
Circulation cost level change, in % to the
-742
turnover
Non-operating revenues’change
-1,904
Miscellaneous cost change
-2,526
Profit tax change
-2,602
Total net profit change
-6,351
Thus, in 2017, most of the factors had a negative impact on the profit dynamics of the
enterprise in question. Eliminating the negative influence of some specific factors, it is
possible to calculate the possible pre-tax profit increase under the sway of factors which have
had an impact on its increase. The change of the trade revenue value in 2017 compared to the
level in 2016 had the greatest negative impact on the dynamics of the profit remaining at the
enterprise’s disposal.
The final stage of the analysis of enterprise profit and directions of its distribution is the
development of a set of management decisions aimed at increasing the profit of the enterprise
in question in the planning period. Elaboration of measures for profit optimization is based on
a detailed analysis of the reserves of its growth and the enterprise’s development possibilities,
taking into account the impact of external and internal factors.
To increase the enterprise turnover in the planning period, it is useful to implement
measures aimed at sales promotion of enterprise production, to reduce the impact of seasonal
timing by merchandise lines and accelerate the current assets’ turnover. Reduction of
circulation costs is achieved due to unproductive losses and costs’ decrease, development of
the enterprise purchasing policy, storage area effectivization. The turnover growth and
circulation costs’ decrease in the planning period lead to an increase of the enterprise’s value
of returns and, consequently, to its profitability growth [4].
To develop the proposals for enterprise profit increase in the planning period, it is
necessary to analyze the features of its functioning in more detail.
From 2016, the commercial enterprise is a certified dealer of “R – Keeper” trademark,
under which software support and software and hardware systems are sold, which are
developed for complex automation of restaurants. According to the concluded dealer
agreement it can function only as a seller of commercial and technological equipment.
Since the enterprise does not have any necessary material base and qualified personnel, it
does not accomplish after-sales service, which consists in non-operating equipment
replacement on condition that it is under warranty, as well as equipment repair after the
warranty period. These types of work are carried out in specialized equipment repair shops or
service centers of other market participants. A significant share in the sales revenue of the
research subject falls to the cash register equipment.
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The sales distribution according to consumer groups in the reporting period is presented in
Table 7.
Table 7 Turnover according to consumer groups, RUB in thousand
Rates
Total turnover, including
consumer groups:
2016
2017
257 209,00
Deviation
Absolute, %
Relative, %
217 133,00
-40 076,00
-15,58
166 121,68
154 266,41
-11 855,27
-7,14
69 713,50
59 075,86
-10 637,64
-15,26
91 087,32
62 866,59
-28 220,73
-30,98
41 114,63
25 706,38
-15 408,26
-37,48
1) large and medium
trade and catering mass
retailers
including repeat delivery
2) small enterprises and
individual entrepreneurs
including repeat delivery
The main enterprise turnover, in the reporting period, falls on large and medium trade and
catering mass retailers; the share of this business line was 65% in 2016 and 71% in 2017. In
“small enterprises and individual entrepreneurs” group, there was a drop in sales by 30.98%
in 2017.
Also, an important commercial enterprise effectiveness’ indicator is its customer base
consistency, which can be analyzed on the basis of data on the amount of first time placed
orders and repeat orders (Table 8) [7].
Table 8 Commercial enterprise’s sales pattern according to the placed order type
2016
Rate
large and
medium
enterprises
2017
small
enterprises
large and
small
medium
enterprises
enterprises
First delivery
58,0%
54,9%
61,7%
59,1%
Repeat delivery
42,0%
45,1%
38,3%
40,9%
The analysis shows that along with the growth of the secondary sales’ volume in “large
and medium enterprises” group, their share decreases (from 42% to 38%) in 2017. The
volume of repeat orders by small enterprises and individual entrepreneurs, in the reporting
period, decreases also at a faster pace than the total sales in this group. The current trend
indicates that the enterprise pays more attention to work with new customers and pays
insufficient attention to work with regular customers.
The efficiency of the enterprise is influenced not only by the volume and structure of
sales, but also by costs. The profit and profitability of the enterprise depend on their structure
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and performance. Utilization efficiency of the enterprise’s trading stock is presented in table
9.
Table 9 Utilization efficiency of the commercial enterprise’s trading stock in 2016 – 2017
Rates
Trading stock annual
average,RUB, in thousands
Absolute
Rate of
variation
increase, %
75024,33
-22451,64
77,0
7319,04
7237,49
-81,56
98,9
5805,34
5796,84
-8,50
99,9
45,19
45,05
-0,14
99,7
36,16
36,13
-0,02
99,9
2,64
2,89
0,26
109,7
138,33
126,12
-12,21
91,2
2016
2017
97475,97
Including nonoperating
equipment (surplus stock),
RUB, in thousands
Rapairable equipment,
RUB, in thousands
Nonoperating equipment
share in the trading stock ,
%
Repairable equipment share
in the trading stock , %
Stock turnover
Stock turnover period of
time, days
In the reporting period, the enterprise’s trading stock decreased by 23%, but this reduction
was justified, since a trading stock turnover increased by 0.3 and the turnover period
decreased by 12.2 days. In general, this indicates an increase in the trading stock utilization
and management efficiency of the enterprise.
A negative trend is a surplus stock accumulation in the warehouse, which is formed after
the non-operating equipment replacement with a new one under warranty. The non-operating
equipment is not repaired, as there is no service center. The surplus stock amount increased by
27.0% for the reporting year. The share of non-operating equipment in stocks is 9.6%, while
the surplus stock share increase by 2.1% is observed. It should be noted that the biggest part
of the non-operating equipment is repairable, the rest of the equipment can be used for repair
work in the form of spare parts. The share of cash register equipment to be repaired, as a part
of trading stock is 7.7% and increased by 1.8% in the reporting period.
4. DISCUSSION OF THE RESULTS
Thus, the enterprise has significant reserves to reduce the trading stock, release funds into
circulation, increase business activity through the service organization.
A survey of experts on commercial equipment showed that the majority of them
characterize the commercial equipment market as unstable, demand is unpredictable, seasonal
and changeable.
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It should also be noted that the ultimate buyer’s subpopulation is mainly (70%) of outlets
already in place, which purchased equipment. As a rule, they buy new equipment repeatedly
to retrofit the old one or to expand the network of branch offices. This fact characterizes the
market as quite definite and can explain the absence of suppliers’ advertising campaigns.
Services and advertising are powerful factors in the competitive struggle for the buyer.
They require additional costs, but increase sales and profits. Therefore, it is necessary to
define what types of services the company provides and how it stimulates the demand for
products, how much money is spent on advertising and what is its efficiency [6].
Company specialists predict changes in consumer preferences. Earlier, the focal point,
when choosing commercial equipment, was the equipment quality and its price, but now the
service conditions become increasingly important.
The enterprise efficiency improvement is also seen in the marketing efficiency
enhancement. At present, company advertising expenses are relatively small and advertising
effectiveness is low.
There is no Marketing Specialist at the enterprise in question, and it gives an opportunity
to attract third-party marketing organizations to provide marketing services without recruiting
permanent employees. According to Article 421 of the Civil Code of the Russian Federation,
the parties enter into an agreement, both provided for by law and without a legal provision.
Relations that arise between a customer and a marketing services’ performer, in the process of
executing an agreement for marketing services’ provision, are governed by the norms of
Chapter 39 “Compensated rendering of services” of the Civil Code of the Russian Federation
[1].
Under the marketing services agreement, the contractor undertakes, on the instructions of
the customer, to provide certain services for marketing research of the market, and the
customer undertakes to pay for these services. In accordance with paragraph 1 of Article 779
of the Civil Code of the Russian Federation, the provision of a service involves the
performance of certain actions or the implementation of certain activities [1].
When providing marketing services there is no materialized result. Therefore, from the
point of view of civil law, when providing marketing services, it is not required to record the
result, since this is not included in the list of terms and conditions of the contract on paid
services. However, from the point of view of the Tax Code of the Russian Federation and for
taxation purposes (clause 1 of Article 252 of the Tax Code of the Russian Federation), it is
necessary to submit a document which reflects the results of the performed work on the
marketing services’ provision [2].
5. CONCLUSION
Within the framework of considered directions of commercial enterprise profit optimization,
the following measures were proposed (Figure 5).
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Figure 5 Measures of commercial enterprise profit optimization in the planning period
To calculate the effectiveness of the proposed measures, it is necessary to estimate the
predicted values of turnover rates, gross receipt, level of distribution costs, as well as profits
and profitability of the commercial enterprise in question in the planning period.
According to the results of the analysis of the commercial enterprise performance, the
general directions of profit optimization were identified, the main of which are increase in the
volume of trade turnover, especially during the first half of the year, increase of the relative
level of enterprise’s gross receipt, as well as distribution costs’ optimization and their relative
level reduction. To improve the efficiency of the enterprise in the planning period, it is
proposed to change the structure of the profit distribution, increasing the profit share which is
aimed at enterprise development investing and stockpiling, while slightly reducing payments
to the owner. The implementation of the proposed measures will not only increase the
efficiency of the considered retail trade enterprise in the planning period, but also create
opportunities for its development in the future.
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