What is profitability?

This is the ability of a business to make money. Without profitability, a business cannot survive in the long run. Profitability can be measured with income and expenses and recorded in a business’s income statement.

Where have you heard of profitability?

It’s the main aim of all businesses and is the most important measure of their success. A company that isn’t profitable can’t survive, but a business with high levels of profitability can reward its owners with a big return on their investment.

What you need to know about profitability.

It’s not the same as profit, although the two terms are sometimes used interchangeably. Profit is a number, calculated depending on the income or revenue of a company above and beyond its costs and expenses. Profitability is a measurement of efficiency, and is a relative amount rather than a figure. So even if a company creates a profit, this does not necessarily mean it is profitable. Increasing profitability is one of the most important aims of a company’s managers. They may use partial budgeting to assess the impact of any changes, and analyse the impact with an income statement.