See how company profitability can be calculated

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Year after year, reality repeats itself: the number of companies closing in the country continues to grow. Is it the crisis's fault? The global economy's? It may be, but the truth is that in most cases the main culprit is the organization's own lack of financial control .

This is precisely why calculating a company's profitability is so important. This is the only way to find out whether the company can pay off the initial investment made or the debts arising from it.

To help, we decided to show you how you can do this calculation. Check it out!

After all, what is company profitability?
As we have seen, a company's profitability is a band database indicator that must be monitored to check the financial health of the business. The idea is to discover the potential that a company has to pay for the investments made in its structuring. In other words, we can find out whether the company is sustainable.

How to calculate it?
Calculating profitability is quite simple: just take the institution's profit over a given period of time and divide it by the value of the initial investment (or current value of the business). The percentage shown will be the profitability of your organization over that period of time.

For those who like mathematical formulas, check out the calculation below:

Profitability = (Net Profit / Total Investment) x 100

As an example, we can imagine a company that was set up at least a year ago and that has an initial investment of R$100,000. Consider, further, that the monthly profit of this company is R$10,000. In this case, we would have a profitability of 10% for this enterprise.

The question that remains is: how do I know if I have a good profitability? It is necessary to consider the ideal value for an organization's profitability, something around 2 to 3 times greater than a conservative investment, such as a CDB, for example. This is what experts recommend, since businesses have specific risks.

What is the difference between profitability and profitability?
Many people still confuse the concepts of profitability and profitability, but there is a big difference between them. If profitability seeks to discover whether the business is sustainable or not, profitability aims to verify whether the operations are justifiable.

Profit is nothing more than sales revenue minus deductions. Profitability, therefore, is the percentage demonstration of this value. In this case, profitability is calculated by the following formula:

Profitability = (Net Profit / Gross Revenue) x 100

Note that, while profitability is the total investment made in the business, profitability is the gross revenue obtained over a given period. In one case, we want to know whether the investment has actually yielded considerable results, in the other, whether the business is showing a profit.

Finally, it is important to highlight that monitoring indicators, such as the company's profitability and profitability, is essential for you to keep your business' financial health up to date and not add to the sad IBGE statistics .