What is profitability analysis?
profitability analysis is the process of comparing income with the production and determining how much profit has been achieved over a specific period of time. This activity can help owners of enterprises determine the effectiveness of the marketing campaign, to identify the expenditure areas that may need to be re -evaluated and decide on the viability of business as a whole. To ensure new financing, either by loans or the attraction of investors, all -time analysis may be required.
When completing the profitability analysis, it is first important to identify all costs. This includes hard costs such as stocks, buildings, public service accounts, advertising payments, salaries, etc. It also includes soft costs such as capital costs.
People often forget to include the actual cost of working in analyzing part of the company, such as a specific project. The actual costs include not only the salary of employees, but also its package of benefits. In large companies, this actual cost Number is often availableEven from the Department of Human Resources.
As soon as all costs have been identified and collected, the individual must collect profitability analysis to collect revenue information. Resources of income may include sales, license fees and rent collected. Total income minus total expenditure brings profit.
Some companies are not considered profitable unless revenue is higher than the production of a predetermined percentage or dollar amount. This is usually because these companies represent reinvestment dollars. In this business model, a specified percentage of profitable dollars are always assigned to a business reinvestment, often to buy new equipment, update technology or purchase of real estate.
profitability analysis can be used in many ways. For example, a small company can place a coupon in a local newspaper. To find out if the couponzisk was to compare the cost of advertising plus the amountmoney discounted to the amount of new business brought by coupon. She tells her whether the campaign was profitable and helped her determine whether it was again or not.
Business seeking infusion of capital may be necessary to complete profitability analysis to ensure financing. Banks are more likely to lend money to an enterprise that can show a strong history of profitability. Investors can also be more likely to invest money with such a business.
All businesses that are publicly traded must provide shareholders analysis of profitability on a predetermined, planned foundation. This often happens every year. Such analyzes must also provide companies that are financed by the government.