How to evaluate the operating conditions of enterprises through the changing trend of capital profit rate-Economic paper Author: Zhongzhou Daily-Xiaojun Source: Original date: 2011-2 Popularity: 50 Label: Published in economic papers Abstract: Capital profit rate is an important indicator to measure the purchasing power of enterprises. By analyzing the changing trend of capital profit rate, it is very important for investors and relevant regulatory authorities to evaluate the operating conditions of enterprises. This paper discusses in detail how to evaluate the operating conditions of enterprises through the changing trend of capital profit rate, in order to provide valuable reference suggestions for investors and regulatory authorities. Keywords: capital profit rate, economic benefit, profitability 1. Evaluate the role of enterprise capital profit rate 1. The concept source of capital profit rate refers to the ratio of enterprise net profit to average capital, that is, after-tax profit to capital investment and its capital premium. The source of capital profit rate index determines that it can truly and comprehensively reflect the profitability of enterprise capital. In the process of evaluating the economic benefits of enterprises, the profit rate of capital is one of the core evaluation indexes. 2. Evaluation of the role of enterprise capital profit rate First of all, for an enterprise, the higher the capital profit rate, the higher the economic benefits obtained by its capital investment and the better its operating conditions. Secondly, for investors, the level of corporate capital profit rate is an important basis for their investment decisions. The ultimate goal of investors' investment is to obtain profits, and the rate of return on capital is directly related to investors' rights and interests. For investors, the higher the capital profit rate of the invested enterprise, the smaller the investment risk faced by investors, that is, the higher the capital profit rate, the more worthy of investors' investment and additional investment. Therefore, the profit rate of capital is an important basis for investors and potential investors to make investment decisions. When enterprises absorb part of debt funds for capital-based production and operation activities, the return on capital will be improved due to the principle of financial leverage. Although this part of the increased profit is not directly brought by capital, it is also the result of effective use of capital. This also shows to some extent that enterprise managers are good at using borrowed funds to operate, and then increase profits for enterprises. The role of investors in analyzing the return on capital can be summarized as follows: first, evaluate and judge the investment benefit. The rate of return on capital is the basic index for investors to check and judge the quality of investment benefits, and it is also the basic basis for their investment decisions. Second, objectively evaluate the working ability of enterprise managers. The rate of return on capital is a concentrated reflection of the quality and efficiency of enterprise managers' management work. Through the analysis of the return on capital, investors can get an objective evaluation of the ability of enterprise managers. Third, for investors, the higher the rate of return on capital, the stronger the profitability of investors' capital investment. Through the evaluation of the capital return rate index, investors can test whether their investment has achieved a good return, that is, whether their capital has been preserved and increased. Second, the analysis of the constituent elements of the capital profit rate index According to the connotation of the capital profit rate, it can be divided into several indicators such as the paid-in capital rate of return, the self-owned capital rate of return, the total capital rate of return, the working capital rate of return, and the human capital rate of return. To objectively and comprehensively evaluate the operating conditions of enterprises, it is only necessary to analyze and evaluate the above indicators. 1. Profit rate of paid-in capital Profit rate of paid-in capital is the ratio of enterprise net profit to paid-in capital, and it is the profitability of enterprise owners' capital investment. The higher the profit rate of paid-in capital, the stronger the profitability of the enterprise's actually invested capital; The lower the profit rate of paid-in capital, the weaker the profitability of the enterprise's actually invested capital. For enterprises, the factors that affect the profit rate of paid-in capital are not only the factors that affect the net profit, but also the changes in the scale of corporate liabilities. Generally speaking, the increase of debt will lead to the increase of the profit rate index of paid-in capital. It should be noted here that if the capital profit rate index of an enterprise is greatly improved in a short period of time, it does not necessarily mean that the overall operating efficiency of the enterprise is improved, or it may just be due to the injection of a large amount of investment. Especially for listed companies, the increase in capital profit rate caused by some speculative short-term investments is likely to be caused by malicious operations of stakeholders. Investors should carefully analyze and evaluate the recent financial statements of enterprises, so as to objectively evaluate the reasons for the changes of core indicators, rationally invest and reduce investment risks. 2. Profit rate of self-owned funds Profit rate of self-owned funds is the ratio of net profit to average owner's equity, which can reflect the investment income level of enterprise's own funds and is the focus of investors' attention, and its level often directly affects investors' final decision. Before calculating the profit rate of enterprise's own funds, we must first make clear what kind of funds the enterprise's own funds refer to. According to the liquidity management measures issued by the relevant departments, the enterprise's own funds are calculated as the enterprise's free liquidity, that is, the owner's rights and interests of fixed assets and other funds are deducted for operating turnover. This calculation method is based on an ideal enterprise financial statement, that is, except inventory, accounts receivable, accounts received in advance, accounts payable and prepayments, other current items such as monetary funds, notes receivable, notes payable and wages payable account for a small proportion in the statement. In practice, these subjects that are not considered in enterprise reports often account for a large proportion. Therefore, to objectively analyze the profit rate of enterprise's own funds, we should not simply calculate it according to the rational formula, but also consider it comprehensively according to the actual financial situation of the enterprise. The value obtained by deducting the part of the borrower's own funds used for working capital can often reflect the level of the enterprise's own funds more truly. 3. Total return on capital The total return on capital refers to the profitability of the total capital of an enterprise, including the comprehensive income level of its own capital and borrowed capital. From the point of view of enterprise managers, both self-owned capital and borrowed capital belong to the category of available capital of enterprises, and there is no need to distinguish them clearly, only the comparative relationship between total capital and income of enterprises needs to be considered. It should be noted here that the amount of income relative to total capital should be the amount of interest before deducting the interest on borrowed capital, because the capital used by enterprises includes part of borrowed capital in addition to its own capital. Interest on borrowed capital is regarded as an expense, because borrowed capital is regarded as its own capital. Therefore, the objective calculation of total capital gains should be the result of the sum of the total profits on the income statement and the interest on borrowed capital. In addition to interest expenses, discount expenses and enterprise loan interest, the interest on borrowed capital should also include the discounted amortization amount after the enterprise issues bonds. 4. Return on working capital The return on working capital reflects the contribution of operating activities to the return on net assets, and the return on net assets reflects the ratio of after-tax operating profit to average net assets. The rate of return on working capital reflects the operating conditions of an enterprise in a period of time, and can directly and effectively reflect the current operating conditions of the enterprise, which is the most direct basis for enterprise owners to evaluate the operating conditions of the enterprise. By evaluating the rate of return on working capital of enterprises, enterprise managers can quickly obtain the current operating conditions of enterprises. Once the index drops rapidly, they can find out the reasons and solutions in time by investigating the influencing factors. It can be said that the change of working capital return rate is the most flexible and rapid index to evaluate the current operating conditions of enterprises. 5. Rate of return on human capital With the advent of knowledge economy, human resources have an increasing impact on the operating conditions and future development of enterprises. In recent years, the weight of human capital in enterprise capital system is increasing day by day. In the future, the evaluation of human capital return rate will become an important index to evaluate the operating conditions of enterprises. The increase in the proportion of human capital is mainly due to the contribution of human capital in the process of intangible assets creation. In the high-tech field, the main sign to measure the value of an enterprise is not the amount of its capital, but the value of its intangible assets. The value of intangible assets in these enterprises is almost all the income brought by human capital investment, and besides the current profits of intangible assets, the added value of intangible assets is also obtained through human capital investment. Therefore, in order to achieve stable and sustainable development, enterprises must attach importance to the analysis of human capital investment, and bring human capital investment into the enterprise economic index system for systematic, comprehensive and in-depth evaluation and analysis. Third, the ideas and methods of evaluating and improving the capital profit rate Above, we have decomposed and analyzed the constituent elements of the capital profit rate. In practice, enterprises should make more fuss about the elements of capital profit rate, so as to evaluate their own operating conditions and improve the capital profit rate. Through the evaluation and analysis of core indicators, they can obtain a more objective evaluation of the operating conditions of enterprises, and adjust some indicators purposefully according to the actual situation of enterprises, so as to improve the capital profit rate of enterprises and thus comprehensively improve the economic benefits of enterprises. 1, the basic idea of evaluating the capital profit rate Through the above division of the capital profit rate index system, we can easily find that the paid-in capital rate of return, self-owned capital rate of return, total capital rate of return, working capital rate of return, human capital rate of return and other indicators can reflect the current operating conditions of enterprises from different aspects, but these indicators have certain differences in depth, breadth and timeliness. According to the characteristics of these indicators, in the process of evaluating the operating conditions of enterprises, we should analyze them according to certain ideas. First, by comparing the profit rate of paid-in capital with the debt ratio of enterprises, we can understand the capital structure and capital strength of enterprises. If the debt level of an enterprise is high, its profit rate of capital cannot be used as the main index to judge the profitability of the enterprise. Investors should think carefully when investing, because the excessive debt level increases the business risk of enterprises, and the stability of their profitability is often affected to a certain extent. Second, through the profit rate of its own funds to assess the potential risks in the process of operation, many enterprises are in trouble because of the lack of sufficient liquidity. When this ratio drops, it is likely that enterprises are facing operational difficulties. When the ratio drops to a low level, investors should not invest rashly, because injecting funds into such enterprises often means facing greater investment risks. Third, we can understand the operating conditions of enterprises and managers' operating ability through the rate of return on operating capital, and judge the value of intangible assets and their long-term development ability through the rate of return on human capital. 2. Ways and means to improve the capital profit rate and economic benefits of enterprises (1) Control the scale of corporate debt and reduce the road of leverage development. The so-called low leverage is to continuously reduce financial leverage, that is, to reduce the proportion of liabilities in working capital. As we have analyzed above, the increase of debt can quickly improve the profit rate of enterprise capital in the short term, but this way can not fundamentally improve the profitability of enterprises. Therefore, in order to achieve long-term and stable development, enterprises must reduce the road of leveraged operation and realize the stable growth of enterprise profits through reasonable financing and effective operation. First of all, enterprises should objectively evaluate and analyze their own resources and capabilities, and formulate the overall development strategy according to the actual development of enterprises. Its development strategy not only includes financing strategy, capital operation strategy and product strategy, but also includes a set of support system that can effectively guarantee the implementation of enterprise strategy under the principle of low leverage, mainly including internal management, planning and budget, human resources development and utilization, brand culture construction, and enterprise process standardization management. Secondly, it is necessary to ensure the stability of the enterprise's capital sources, establish a unified fund management platform within the enterprise, manage all kinds of funds within the enterprise in a unified way, separate an independent fund management department from the financial department, clarify the use and management norms of internal funds, and establish a standardized internal fund lending system to ensure that every fund of the enterprise has a clear flow direction. (2) Improve the profitability of enterprises through effective management of human resources. In the era of knowledge economy, the importance of talents has been widely recognized by society and enterprises, and the rate of return on human capital is also an important indicator that cannot be ignored in the composition of enterprise profit indicators. Therefore, in order to continue to operate and develop, enterprises must attach importance to the cultivation of talents, create more intangible assets for enterprises through the operation of human resources, and continuously enhance the value of intangible assets through the effective operation of human resources.