By: Jhon Eduardo Galviz Tafur
profitability
of a company is the ability to use its resources to produce and generate income
greater than its expenses with the development of its economic activity. the
ability of a company to generate profits from its operations. Profitability is
one of the four basic elements for analyzing financial statements, balance
sheets, and company performance. The other three are efficiency, solvency and
market prospects. Investors and managers use these key concepts to analyze how
well a company is doing and what future potential it could have if operations
were managed properly.
The key
points of profitability are income and expenses. Revenue is business income.
This is the amount of money customers earn by selling products or providing
services. However, generating income is not free. Companies must use their
resources to produce these products and provide these services.
Resources
such as cash are used to pay expenses such as employee payroll, rent,
utilities, and other necessities in the production process. Profitability looks
at the relationship between revenues and expenses to see how well a business is
performing and the potential future growth a business could have.
Profitability
is financial metrics used by business to measure and evaluate a company's
ability to generate income (profit) relative to revenue, balance sheet assets,
operating costs, and shareholders' equity over a specified period of time .
They show how well a company uses its assets to produce profits and shareholder
value.
Most
businesses typically look for a higher ratio or value, as this generally means
the business is doing well in generating revenue, profit, and cash flow. The
indices are most useful when they are analyzed in comparison to similar
companies or in comparison to previous periods.
