Profitability Analysis
- By Ashwin Dedhia
A properly conducted profitability analysis provides invaluable evidence concerning the earnings potential of a company and the effectiveness of management
The bottom line
That’s what many business people look at to gauge the profitability of a company. While important, the bottom line doesn’t always provide the entire picture, and using it as the sole barometer of company performance could have serious fiscal repercussions.
This discussion provides some simple profitability ratios and analytical procedures that can help determine your company’s present and future financial standing. With your findings, you can identify company trends and compare current figures to your business’s historical performance. Once this essential data is in hand, you will be able to evaluate your business in relation to your competition and industry norms.
The following ratios and analytical procedures described here will provide you with a quick reference guide to how your business is performing:
Ratios
- Gross Profit on Net Sales
- Net Profit on Net Sales
- Management Rate of Return
- Net Profit to Tangible Net Worth
- Rate of Return on Common Stock Equity
Analytical Procedures
- Comparative Statements
- Index-Number Trend Series
- Common-Size Statements
- Analysis of Financial Statement Components
Profitability Analysis Reporting using BI technology helps executives make strategic and operational decisions with confidence.Profitability Analysis Reporting is being used more in corporations as they become more accurate and actionable. This is why BI technology helps build up profitability analytics solution. The BI technology solution is so advanced it provides the largest enterprises with accurate net profitability for each transaction, order, SKU, product, customer, customer segment and supplier. This precision and accuracy is key to the use of Profit Analytics in strategic and operational decisions.
- Many customers have changed their sales compensation plans to be based on net profit dollars generated, rather than revenue. Their reason? They wanted to focus on increasing their profit dollars. For the first time, they had the accuracy they needed to confidently base compensation on the sales executives’ profitability.
- BI accurate and timely reporting of Profitability Analytics and Key Performance Indicators (KPIs) makes it possible for executives to make strategic and operational decisions with confidence. Companies are able to identify ways to increase profit and operate more efficiently. They have the information they need to negotiate effectively and improve customer and supplier profitability.
- Achieve global view of profitability from multiple data sources using BI technology
- Calculate profitability based on user-definable rules and formulas on a BI platform.
- BI technology helps analyze profitability along any dimension including geography, product, channel, segment, customer, organization, etc
Posted on May 5th, 2008 by Ashwin Dedhia
Filed under: Business Intelligence
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