The effectiveness of the enterprise profit management policy is determined by the results of its formation and the nature of distribution.
The source of profit of enterprises is the total income, which is the amount of money received by the enterprise from all its activities. Profit, first of all, depends on the volume of products sold, its competitiveness, marketing, innovation and investment activities.
Priority payments from the proceeds received from the sale of products (works, services) in the formation of profit are value added tax, deductions to the republican fund for the support of producers of agricultural products, agrarian science and food and the road fund, deductions to the local budget according to a single standard and the cost of products (works, services). The procedure for the formation and distribution of profits is presented in Figure 8.3.
Profit distribution is the process of forming the directions of its upcoming use in accordance with the goals and objectives of the enterprise development.
The distribution of profits is carried out in accordance with the law on taxes and fees levied on the budget, the instructional and methodological instructions of the Ministry of Finance, the charter of the enterprise. Enterprises must ensure the fulfillment of obligations to the budget, banks, suppliers and consumers, higher and other organizations, financing of costs for the development of science and technology, technical re-equipment, reconstruction and expansion of existing industries; social development and material incentives at the expense of earned funds.
In the process of distributing the profit of the enterprise, its use is ensured in the following main areas:
1. The amount of tax payments at the expense of profits;
2. The amount of preferential profit;
3. Capitalizable part of profit:
funds of the accumulation fund allocated for investment in production development; funds allocated for the formation of a reserve fund; other forms of profit capitalization.
4. Consumption Fund:
funds allocated for the payment of income to property owners; funds allocated for material incentives and social development of personnel; other forms of profit consumption.
The nature of the distribution of profits determines many significant aspects of the company’s activities, influencing its performance.
The high role of the nature of the distribution of profits in the activities of the enterprise is determined by the following basic provisions:
1. The distribution of profits directly implements the main goal of the policy of its management – to increase the level of well-being of the owners of the enterprise. It forms the proportions between the current payments to them of income on capital (in the form of dividends, interest, etc.) and the growth of these incomes in the coming period (by ensuring an increase in invested capital). At the same time, the owners of the enterprise independently form these areas of meeting their needs in time.
2. Profit distribution is the main instrument of influence on the growth of the market value of the enterprise. In a direct form, this impact is manifested in the provision of capital gains in the process of capitalization of part of the distributed profits, and indirectly it is provided by the main proportions of this distribution.
3. The proportions of profit distribution determine the pace of implementation of the enterprise development strategy. This strategy is implemented in the process of investment activity of the enterprise, the volume of which is determined by the possibilities of forming financial resources, primarily at the expense of internal sources. And the profits reinvested in the distribution process are the main of these internal sources.
4. The nature of profit distribution is the most important indicator of the investment attractiveness of the enterprise. In the process of raising equity capital from external sources, the level of dividends paid by the enterprise (or other forms of investment income) is one of the main evaluation criteria that determine the result of the upcoming issue of shares. In addition, as shown earlier, an increase in the level of dividend payments determines the corresponding increase in the value of shares in the stock market, forming additional income for investors.
5. Profit distribution is one of the effective forms of influence on the labor activity of the personnel of the enterprise. The volumes and forms of personnel participation in profits determine the level of labor motivation of employees, contribute to the stabilization of personnel and the growth of labor productivity.
6. The proportions of profit distribution shall form the level of additional social protection of employees. In conditions of low efficiency of state forms of social protection of employed workers, this role of the distributive mechanism of profit in the enterprise makes it possible to supplement their minimum social protection.
7. The nature of the distribution of profits shall affect the level of current solvency of the enterprise. Payments of profits provided for consumption by the owners and personnel of the enterprise are carried out, as a rule, in monetary form, i.e. in the form of a fixed asset that ensures solvency for urgent financial obligations. With a large amount of profit payments for consumption purposes, the level of solvency of the enterprise in the current period may decrease significantly.
The distribution of profits is carried out in accordance with a specially developed policy (it is based on the dividend policy), the formation of which is one of the most complex tasks of the overall profit management policy of the enterprise. This policy is designed to reflect the requirements of the overall development strategy of the enterprise, to ensure an increase in its market value, to form the necessary amount of investment resources, to ensure the material interests of owners and personnel. At the same time, in the process of forming a profit distribution policy, it is necessary to take into account the opposite motivations of the owners of the enterprise (shareholders, depositors) – obtaining high current incomes or a significant increase in their size in the long term.
The main goal of the profit distribution policy remaining at the disposal of the enterprise is to optimize the proportions between the capitalized and consumed parts of it, taking into account ensuring the implementation of its development strategy and the growth of its market value.
Proceeding from this main goal, in the process of forming the policy of distribution of the profit of the enterprise, the following tasks are solved:
ensuring that the owners receive the necessary rate of return on invested capital; ensuring the priority goals of the strategic development of the enterprise at the expense of the capitalized part of the profit; ensuring stimulation of labor activity and additional social protection of personnel; ensuring the formation of the reserve and other funds of the enterprise in the required amounts.
Taking into account the implementation of these main tasks, the direct distribution of the profit of the enterprise is carried out.
The specificity of the tasks facing each particular enterprise in the process of its development, the difference in the external and internal conditions of their economic activity do not allow to develop a single model for the distribution of profits, which would be universal. Therefore, the basis of the mechanism for distributing the profit of a particular enterprise is the analysis and consideration in the process of this distribution of individual factors that link this process with the current and future economic activities of this enterprise.
The factors affecting the proportions and efficiency of profit distribution are very diverse, and the degree of intensity of their manifestation is also different. One group of these factors determines the prerequisites for the growth of the capitalized part of the profit; the other group, on the contrary, inclines management decisions in favor of increasing the share of its consumed part.
According to the nature of the occurrence, all factors affecting the distribution of profits can be divided into two main groups:
a) external (generated by the external conditions of the enterprise); b) internal (generated by the peculiarities of the economic activity of this enterprise). Their classification is shown in Figure 8.4.
External factors are considered as a kind of restrictive conditions that determine the boundaries of the formation of the proportions of profit distribution. Among the most important of these factors are: legal restrictions, the tax system, the average market rate of return on invested capital, alternative external sources of formation of financial resources, the rate of inflation, the stage of the commodity market, the “transparency” of the stock market.
Internal factors have a decisive impact on the proportions of profit distribution, as they are determined by the specific conditions and results of the management of this enterprise. These factors include: the interests of the owners of the enterprise, the level of profitability of activities, investment opportunities for the implementation of high-yield projects, the need to accelerate the completion of the initiated investment programs and projects, alternative internal sources of formation of financial resources, the stage of the life cycle of the enterprise, the level of its solvency, the number of personnel and programs for its participation in profits.
Taking into account the considered factors allows to significantly reduce the range of parameters of possible proportions of profit distribution in certain areas, primarily the proportions of its capitalized and consumed parts, which form the main conditions for the upcoming development of the enterprise.
The principles of profit distribution and the factors that determine it make it possible to form a specific type of profit distribution policy (dividend policy) at the enterprise, which best satisfies the goals and takes into account the possibilities of enterprise development in the coming period.
The amount of profit owned by the employee can be transferred to him for personal use or directed as a contribution to the development of production. Dividends are accrued annually on the amount of the contribution to a member of the labor collective of the enterprise.