Sales revenues and net profit in A MANUFACTURING ENTERPRISE A econometric analysis
Strzelecka A. (WZ PCz, c. Czestochowa, Poland)
The modelling of selected economic phenomena (sales revenues, net profit) in a manufacturing enterprise - Zakład Płytek Ceramicznych Opoczno S.A., as presented in the paper, may support the management process by creating a base to forecast the development of the phenomena in the future.
Introduction
A single enterprise plays a key role both in theory and in the real world. It must be able to identify what can be sold, at what price and it must be able to organise a variety of available resources in an effective production process. It must sell its products at a price covering the cost of consumed resources and also make it competitive with other enterprises. Thus, making its choices, the company determines its costs that are an obstacle to making the choices, restricting the business of the company. Therefore, the costs structure in an enterprise (the way in which various cost measures change along with changing production volumes) determines the profitability of production decisions.
Each enterprise attaches great importance to its costs since a cost increase by a unit of measure reduces its profit. Additionally, depending on the price of specific goods and its cost, the enterprise decides on how big volumes of specific products it will manufacture and sell.
Moreover, each effectively operating company should be a profitable unit that covers its costs with revenues from the sale of manufactured products or provided services. All economic activity consisting in manufacture of products and provision of services requires involvement of various production factors.
The paper covers an analysis of selected factors in the operation of Zakład Płytek Ceramicznych Opoczno S.A. where ceramic tiles are manufactured in accordance with standards in force in Poland and the process covers the following stages: storage of raw materials, weighing in accordance with recipes, milling from raw state into granulate, production and storage of granulate, preparation and milling, and storage of engobe and glaze, tile forming, glazing, burning, sorting and storage and distribution.
The basic goal of this paper was an analysis of selected factors influencing the business of the manufacturing enterprise and the results affecting the functioning of each producer.
To perform that, a multi-equation econometric model was constructed that was used as a base to forecast the selected economic quantities, thus facilitating economic decisions.
The paper was drawn on the basis of information from financial statements of Zakład Płytek Ceramicznych Opoczno S.A. concerning the following aspects: revenues from sales of tiles, net profit, sales of tiles, employment and internal costs of sales by month from January 2002 until October 2003.
The development of selected economic values at Opoczno S.A.
A pre-condition to development of a business plan of an enterprise is an adequate assessment of its financial condition. The future of a company is assured with profits that are used to finance its business and development. This measure of rational management, decisive for economic independence of the company depends on the ability to make choices on the basis of economic calculations.
Knowledge of sales revenues and net profit at Opoczno S.A. helps the persons involved in marketing to determine the directions of the companys business that conform to current needs as well as future development expectations.
Sources: Own analysis
Figure 1. Sales revenues at Zakład Płytek Ceramicznych Opoczno S.A. from January 2002 to October 2003 (fixed prices of 10.03)
Months and years on the line
Sources: Own analysis
Figure 2. Net profit at Zakład Płytek Ceramicznych Opoczno S.A. from January 2002 to October 2003 (fixed prices of 10.03)
Analysing the measures of economic phenomena in Figures 1 and 2, it is visible that throughout the analysed period there were changes in those measures. Throughout the analysed period, average net profit was around PLN 2269.68 thousand (in January and December 2002 and in January 2003 the company generated net loss) while the average sales revenues amounted to PLN 28273.21 thousand.
Econometric analysis
Analysing the operation of a manufacturing enterprise, attention should be paid to some key factors reflecting the processes in the enterprise, namely sales revenues and net profit. The proposed period of analysis from 1.01.2002 to 31.10.2003 was selected due to the availability of data.
In order to describe the mentioned economic phenomena (revenues from the sale of tiles in thousands of PLN and net profit in thousands of PLN), the following variables have been proposed: employment in persons, sale of tiles in thousand m2, internal cost of sales in thousands of PLN).[1]
After a preliminary analysis the model had the following form:
where: SPt - sale of tiles in the period t,
PRZt revenues from the sale of tiles in the period t,
ZNt - net profit in the period t,
Zt employment in the period t,
Kt internal cost of sales in the period t.
The above model is: descriptive (It describes and forecasts the inter-relations), stochastic (There is a random element in the equations), multiple equation model (There are two equations that show relations between key economic values), linear (There are linear relations between the variables in all equations), static (the analysed relations occur in this same time units of time), simple (There are not relations between endogenous nonlagged variables).
In order to estimate the multi-equation econometric model, a fundamental estimation method of economic model parameters was used the ordinary least square.[2]
Each equation in the model was estimated separately and after some research, the most favourable forms of the function were obtained (There are t-Student statistics statistic in the brackets)[3]:
An analysis of the model shows that in the researched enterprise Zakład Płytek Ceramicznych Opoczno S.A. in the period 1.01.2002 31.10.2003 the following can be found:
- unidirectional changes between the analysed values, i.e. between sales revenues and tiles sales and employment, and between net profit and employment:
a) a growth of tile sales (by one unit) causes a growth of sales revenues on the average by PLN 19.699 thousand;
b) a growth of employment (by one unit) causes a growth of sales revenues on the average by PLN 1.570 thousand;
c) assuming a growth of tile sales by one thousand m2 one can expect a growth of net profit by about PLN 13.062 thousand;
- multi-directional changes between internal costs of sales and net profit:
a) unit growth of internal costs of sales has a negative effect on net profit by PLN 0.558 thousand on the average.
In each instances, the other variables in the equation (model) are assumed to remain unchanged.
Additionally, there is a small difference between the values projected by the model and the empirical values. There is little chance of error in estimating sales revenues and net profit at Opoczno S.A. in the period from 1 January 2002 until 31 October 2003, namely the empirical values of the above economic values (in the same sequence) differ from the theoretical value of those exogenous variables resulting from the econometric model on the average by PLN 965.13 thousand and PLN 771.38 thousand.
Basing on the value of the coefficient describing compliance of theoretical calculations with empirical data, it is visible that sales revenues at Opoczno S.A. in the examined period is in 97.2% due to tile sales and employment; net profit at Zakład Płytek Ceramicznych Opoczno S.A. in the examined period is in 88.7% due to sales and internal costs of sales (Figures 3 and 4).
Sources: Own analysis
Figure 3. Empirical and theoretical sales revenues values in thousands PLN at Opoczno S.A. in the period 01.01.2002 - 31. 10.2003
Sources: Own analysis.
Figure 4. Empirical and theoretical net profit values in thousands PLN at Opoczno S.A. in the period 01.01.2002 - 31. 10.2003
It is clear that close compliance of the estimated equations to empirical data shows that there is little impact of other economic factors that have not been included in the equations.
Moreover, all exogenous variables in the analysed model have a major statistical impact on changes of specific endogenous variables at Zakład Płytek Ceramicznych Opoczno S.A. in the period from 1.01.02 to 31.10.03[4] and in all equations of the model there is no autocorrelation[5].
The results show that the analysed multi-equation model is suitable for projecting the level of sales revenues and net profit (There are low values of the variability coefficient specifying the proportion of the standard estimate error in the average value of the described variable). Thus it is possible to state that the model may support decision-making processes.
Conclusion
In the process of production management it is very important that information should reach the enterprises as soon as possible thus providing it with the time to take adequate most favourable decisions. Such information is provided by the forecasting system of the enterprise whose tasks include not only provision of information of changes in the environment but also provision of information on effects of the changes for the enterprise, expressed in the form of projected variables describing its business.
In order to make effective decisions with respect to the business of the company it is necessary to apply certain statistical and econometric methods that allow one to analyse the companys business over time and to forecast market behaviour in order to adjust the production accordingly.
Considering the results, it is possible to state that the analysis shows that the estimated econometric model describes reality to a large extent. The values of the measures produce a conclusion that the functional forms of the equations in the model have been selected correctly. The results show that the exogenous variables have a major impact on endogenous values and the model can be used in the future as a starting point to manage the operations of the company.
Summing up, it should be noted that before taking any decision, the decision-maker should remember that it is necessary to use both econometric methods and tools as well as overall knowledge of the company operations in order to solve specific problems.
References
1. Gruszczyński M., Podgórska M. (ed.), Ekonometria, Szkoła Główna Handlowa w Warszawie - Oficyna Wydawnicza, Warszawa 2003;
2. Jajuga K. (ed.), Ekonometria. Metody i analiza problemów ekonomicznych, Wydawnictwo Akademii Ekonomicznej im. Oskara Langego we Wrocławiu, Wrocław 1999;
3. Nowak E., Zarys metod ekonometrii. Zbiór zadań, Wydawnictwo Naukowe PWN, Warszawa 2002;
4. Sprawozdania finansowe spółki Opoczno S.A. w latach 2002-2003;
5. http://www.stat.gov.pl.