Question

What does profitablilty analysis mean to you? Why do companies analyze profits? What is Analysis? Do you believe that it is necessary to analyze profits? Answer these questions and provide an article link that supports your answers. Discuss and expand the conversation around each others' articles. Cite outside material properly.

Answer 1

Profitability Analysis:

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

Profitability analysis are important to company managers and owners alike. If a business has outside investors who have put their own money into the company, the primary owner certainly has to show profitability to those investors.

Why do companies analyze profits?

Profitability analysis can help an organization 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, help develop better and new offerings to keep up with current market trends, as well as help provide concrete solutions to aspects of the business that don’t generate enough money, or worse, cause the company to lose money.

Profitability analysis allows companies to maximize their profit, and thus also maximizes the opportunities that business can take advantage of in order to keep itself successful and relevant in a very dynamic, competitive, and vibrant market.

Meaning of analysis

Suffice to say, there’s no formula for creating a profitability analysis strategy. But there are many other factors need to be looked at and understood for the analysis.  Geography, industry and market circumstances, customer behavior and trends. These all differ and are relative to the kind of business you have. following are the general steps of analysis of something:

• Define the objective of analysis.
• Set clear measurement priorities
• collect data
• Analyze it
• Interpret results.

Yes, in conclusion, it is necessary to analyze profits. because profitability analysis helps decision-makers see a more concrete picture of the company as a whole, allowing them in turn, to create the right growth strategy. Not being or being poorly aware of weaknesses in a business’ operations can cause critical failure, unless the company’s leadership knows when and where to trigger growth. Profitability analysis essentially gives company leadership the capability to solidify the company’s state before changing things up with any growth initiatives.