In this episode you will learn how to calculate, in a practical and simple way, if your business is profitable.
Discover the main indicators, how they are obtained and how to interpret them with the Sage Advice Podcast.
Today's topic may seem a bit complicated at first, but with the examples you will see that it is simpler than it seems. Although there are various types of dominican republic email list profitability indicators , they have in common that they are quotients. The numerator contains some measurement of results and the denominator contains the resources used.
One such indicator to know when a business is profitable is the financial profitability, sometimes called by the acronym in English ROE. It relates the net result, in the numerator, with the net worth, in the denominator.
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Financial profitability
This indicator is usually broken down into others by multiplying and dividing the quotient by the same figure one or more times. The most frequent decomposition is done by multiplying and dividing the values of sales and assets. Then, we will have a ratio that results from multiplying three divisions:
The first of these will be the last quotient entered, which results from dividing sales by assets . This is nothing more than a rotation. In short, it answers the question of how many monetary units of sales we obtain for each monetary unit invested in assets.
The second ratio is the result of dividing what we had in the numerator at the beginning (net profit) by the amount that appears in the numerator in the asset turnover (sales). We will therefore have a ratio that results from dividing the net profit by sales. This is a net margin that measures what proportion of sales will generate net profit.
The third ratio will be the result of dividing what we had in the denominator of the asset turnover (the asset) by what we had in the denominator at the beginning (the net worth). We are left, therefore, with a quotient resulting from dividing the asset by the net worth, that is, how many times the value of the assets in which we have invested is greater than the resources that belong to the owners of the company. In short, it is a measure of financial leverage .
