What Is Earnings Power?

Profitability refers to the ability of an enterprise to obtain profits, which is also referred to as the ability of a company to increase its capital or capital, and is usually expressed in terms of the amount of enterprise income and its level in a certain period. Profitability indicators mainly include six operating profit margins, cost expense margins, multiples of surplus cash protection, total return on assets, return on net assets and return on capital.

Profitability

definition

Profitability (also known as: profitability), also known as the company's capital or capital appreciation ability, is usually expressed in a certain period of time the amount of corporate income and its level.

Profitability refers to the ability of a company to make profits in a certain period of time.

Other components of profitability assessment:

There are many indicators that reflect corporate profitability. The commonly used ones are net sales margin, gross sales margin, net asset margin, and return on equity.

Sales margin

Net sales margin is the percentage of net profit to sales revenue, and its calculation formula is:

Net sales margin = (net profit ÷ sales income) × 100%

Note: This indicator reflects the amount of net profit brought by each yuan of sales revenue, and represents the level of sales revenue.

Gross profit margin

Gross profit margin is the percentage of gross profit to sales revenue, where gross profit is the difference between sales revenue and cost of sales. The calculation formula is as follows:

Gross profit margin of sales = [(sales revenue-cost of sales) ÷ sales revenue] × 100%

Note: The gross profit margin is the initial basis of the net profit margin of the company's sales, and it cannot be profitable without a sufficiently large gross profit margin.

Net asset interest rate

Net asset interest rate is the percentage of corporate net profit to average total assets.

Average total assets = (total assets at the beginning of the period + total assets at the end of the period) ÷ 2

The formula for calculating net asset profit is:

Net asset interest rate = (net profit ÷ average total assets) × 100%

The higher the index, the higher the efficiency of asset utilization, indicating that the company has achieved good results in terms of increasing income and saving expenditure and saving funds.

Roe

Return on net assets is the percentage of net profit to average net assets, also called return on equity or return on equity.

Its calculation formula is:

Return on equity = net profit ÷ average net assets × 100%

Average net assets = (net assets at the beginning of the year + net assets at the end of the year) ÷ 2

The return on net assets reflects the return on investment of the company's owner's equity and is highly comprehensive.