What is the profitability of a company? Its ROI? Or are there other considerations?

Question

I just need to know the methods of calculating profitability.

Answer 1

Profitability can be measured numerous ways.

It can be measured in ABSOLUTE TERMS. You can say that Ford is more Profitable than Apple Computer based on the most common measure - net profit to common shareholders.

It can be used in RELATIVE TERMS based on net margins. For example, you can say that selling high-end retail goods is more profitable than selling commodity consumer goods - Saks has better profit margins than Walmart). The most common measure is net margin.

It can be said in RELATIVE TERMS in terms of capital efficiency. For example, you can use ROI, ROE, ROA or ROIC. The most common measures are ROE (Net profit/Avg. Equity Balance), ROA (Net Profit/Avg. Asset Balance) and ROIC (NOPLAT/Market Value of Equity, Debt and Minority Interests).