What is profitability? This word is often found on the Internet or in the press. However, not everyone understands the true meaning of this term.
In this article, we will tell you what is meant by profitability and what it can be.
What does profitability mean?
Profitability (German rentabel - useful, profitable) is a relative indicator of economic efficiency. Its coefficient is calculated as the ratio of profit to assets, resources or investments that form it.
The calculation of profitability is expressed both in profit per unit of invested funds, and in the profit that each received monetary unit carries. Typically, ROI is usually expressed as a percentage.
In simple terms, profitability is one of the key performance indicators of a firm, corporation or business.
The fact is that the calculated value of any project cannot be judged on its success. For example, a $ 1 million profit would be very good for a small business, but very low for a large corporation.
In this regard, many factors are taken into account when calculating profitability, including the ratio with different indicators. Thus, after all calculations have been made, the profitability ratio is determined.
It should be noted that profitability is an indicator of efficiency expressed in monetary terms. The higher the profitability, the more successful the business. Consequently, when establishing the unprofitability of production or the provision of services, they talk about the unprofitability of the business.
Profitability can be expressed in a wide variety of areas: sales, banking, capital status, assets, margins, etc.
