profitability
Simply put, profit is the difference between how much a business sells its goods and services for, and how much it costs to produce them. For example, if a T-shirt is sold to a wholesaler for £10, and costs £5 to make, the profit is £5. The shareholders of a company are paid a share of its profits, known as a dividend.
PLCs are required to produce reports that show profit and loss accounts and balance sheets. These reports allow shareholders to assess the business’s profitability, or how well it is doing. To produce these accounts, the Finance department uses a range of simple calculations, called ratio analysis, which:
- is a tool for analysing and assessing financial performance
- enables comparisons to be made with previous years or other companies.
