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Profitability

• The relationship between revenues and costs generated by using the firm's assets--both current and fixed--in productive activities.

• Refers to the levels of profits the bank earns. For banks the interest rate spread, or the difference between what the banks earns on its loans and what it pays on its deposits, will affect the profitability.

• See Pre-tax Profit on Sales.

 
 Embedded terms in definition
 Interest rate
Interest
Its
Profit
Revenues
Sales
Spread
Will
 
 Referenced Terms
 Assets to equity: The ratio of assets to equity in the company; a measure of leverage, which has a bearing on the Profitability of the firm.

 Bottom line: The last line on the income statement or the final amount of profit for the accounting period after all expenses and adjustmentsIs a term that has several meanings which depend on usage and context. Often, it refers to the net Profitability (profits or losses) of a business. It may refer to an answer, point of a long commentary, or a conclusion.

 Break even analysis cost volume profit analysis: Indicates the level of operations necessary to cover all operating costs and the Profitability associated with various levels of sales.

 Business model eps projection: Estimates EPS by applying profit and tax margins to the projected sales rate five years into the future. This centers attention on Profitability rather than sales expansion. This formula may be used to estimate earnings per share five years ahead. It starts with the sales growth projection. (This is used because sales growth is historically more consistent and stable than earnings growth.) Expenses, taxes, and preferred dividends are then subtracted from sales. Finally, the result is divided by the shares outstanding to show the 5-year forecast for EPS. It is worthwhile to compare this sales-based EPS projection with other methods. This should help to confirm the reasonableness of your future 5-year EPS projection.

 Cash dividend: A dividend paid in cash to a company's shareholders. The amount is normally based on Profitability and is taxable as income. A cash distribution may include capital gains and return of capital in addition to the dividend.Money paid to a corporation's stockholders, normally out of the corporation's current earnings or accumulated profits. All dividends must be declared by the board of directors. Dividends are taxable as income to the shareholders.

 
 Related Terms
 Profitability index
Profitability ratios
Risk adjusted profitability

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