The Bottom Line: Is the Company Profitable or Not? By: Dr. John E. Ware, I
Profitability can be measured by evaluating a company's operating performance for a certain time period. There are many factors to consider when measuring a company's profitability such as gross profit margin, profit margin, earnings per share, price-to-earnings, return on stockholder's equity, and much more. However, this article will focus on the basics.
It is necessary to review the income statement to learn more about a company's operating performance. The income statement reports a company's revenues and expenses for a particular period of time (i.e. monthly, quarterly, and annually). Net Income or Net Loss is computed by subtracting expenses from revenues.
Formula: Revenues less Expenses equals Net Income or Net Loss. Net income is recognized in a period when revenues are greater than expenses. Whereas, net loss occurs when expenses exceed revenues. Is the company profitable or not? Answer: Yes, if the bottom line is net income. No, if the bottom line is a net loss.
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