Profitability is based on net revenue and total revenue for a given product. It represents the revenue from sales. Profitability takes into account the net income and the investment in the product. It marks the return on the company's long-term investment. The formula looks like this: net profit ÷ total revenue x 100.
For example, to obtain the net profit generated by your company, we would have the following account: 3,000 (net profit) ÷ 12,000 (total revenue) x 100 = 25%. Basically, it is as if every R$ 100.00 generated would generate R$ 25.00 profit.
Profitability, on the other hand, is a measure of the financial return on an investment, whether fixed income or a bank. The formula is: net profit ÷ investment in the business x 100.
For example, a person uses an amount of 35 thousand reais to open his own company and the business starts having a monthly net profit of 3.5 thousand reais per month. In this case we know that the monthly profitability of this company is 10%.
So in short, profitability correlates the net profit with the total revenue of the business, while profitability correlates the same profit with the amount invested in the company to find out if it is really worth it.
But the question is: how does this impact your business?
In addition to knowing how the health of your company is, you can make decisions that positively impact it, improving performance, making it not only cover expenses, costs and expenses, but also bring a return of income and financial growth.
So, is your company earning the necessary income?