Profitability
Definition
Profitability refers to how profitable a company's operations are by comparing its revenues with its expenses (including production costs). It determines whether a business is making money or not.
Analogy
Think of profitability as a scorecard for a basketball team. If the team scores more points (revenue) than it allows (expenses), it is considered profitable.
Related terms
Break-even Point: The break-even point is the level of sales or revenue at which a company neither makes a profit nor incurs a loss. It represents the minimum amount of sales needed to cover all expenses.
Return on Investment (ROI): ROI measures the profitability of an investment by comparing the gain or loss from that investment relative to its cost. It helps assess whether an investment is worthwhile.
Profit Margin: Profit margin indicates how much profit a company earns per dollar of revenue. It calculates the percentage of profit generated from each sale and reflects a company's efficiency in managing costs and pricing strategies.
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