Question

Profitability and market prospects analysis of a company

Answer 1

Profitability and market prospects analysis of a company: -

Profitability Analysis of a company

Profitability analysis as an “analysis of cost and revenue of the organisation which determines whether or not the firm is profiting or not".

In Nutsheel, profitability analysis can help an organisation discover things like which customers are the least profitable (those who spend less), as well as those who really put their money where their mouth is. It’s also able to help discern which products or services generate the least amount of revenue, determine reliable sources of data an information, create an efficient and effective strategy that can respond to constantly changing customer needs.

It also helps: -

- Develop better and new offerings to keep up with current market trends,

- Provide concrete solutions to aspects of the business that don’t generate enough money, or worse, cause the company to lose money.

An integral part of this analysis is looking at the customer base and seeing, in essence, which ones work better towards helping the company meet its profitability goals. Where the larger profitability analysis looks at things in a much larger scope, customer profitability analysis looks at individual customers’ profitability profiles. It answers questions like, how much is spent servicing a particular customer’s needs, and how much a particular kind of customer can generate in terms of income for the organization in exchange for services rendered or products purchased.

A organisation can also do PARETO Analyis which means: -

80% of the revenue comes from 20% of the products. Since, 80% of the revenue comes from 20% of the products, a organisation should spend on advertising on those 20% of the products to generate more profit for an organisation.

Market prospects analysis of a company:  

- Market prospects are the company’s potential future performance in the competitive marketplace. In simple words, a company’s market prospects are the company’s forecasted ability to compete in a marketplace and generate profit or bear loss, as the case may be.

- Both internal and external analysts compare past company performance with current competition and expectations of future products to develop a company’s market prospects. Market prospects can be good or bad and favorable or unfavorable, it completely depends on the circumstances,

For Instance, Microsoft Corporation entered into the gaming industry in 2001 with the Xbox gaming console. Analysts have anticipated that Microsoft had high or favorable market prospects in the gaming industry. However, after a series of marking unsuccessful, manufacturing defects, and failed sales forecasts, many investors speculated that the Xbox’s once favorable market prospects were declining and Microsoft would soon cease production on the gaming console.

Microsoft recalled many of the defective Xbox consoles and continued to build its reputation and gaming license library and today it is one of the most popular gaming systems in the world.

Market prospects are often considered one of the building blocks for analysing a company’s future performance. Investors and other stakeholders are not only interested in whether the business can survive but also they also want to know if the business can succeed and grow as well. Investors and other stakeholders tend to look at market prospects, liquidity, solvency, and profitability along with other performance metrics when evaluating the future performance of a company.