Profitability is the ability to generate sufficient profit something or profit;
For example, a business is profitable when it generates more income than expenses, a customer is profitable when it generates more income than expenses, an area or department company is profitable when generating higher revenues than costs.
But a more precise definition of profitability is an index that measures the ratio of the profit or the profit obtained, and investment or the resources used to obtain it.
To find this profitability must divide the profit or the gain from the investment, and the result multiplied by 100 to express it in percentage terms:
Profitability = (Profit / Investment) x 100
For example, if we invest 100 and after one-year investment generated our utilities 30, using the formula: (30/100) x 100, we can say that investment gave a return of 30% or, in other words, investment or equity grew by 30%.
Or, for example, if we invest 100 into an asset and then sell it to 300, using the formula: (300-100 / 100) x 100, we can say that investment gave a return of 200% or, in other words , investment or equity was a variation of 200%.
The term profitability is also used to determine the relationship between the profits of a company and various aspects of it, such as sales, assets, property, the number of shares, etc.
In this case, to find this profitability simply we must divide the profits between the value of the aspect we want to analyze, and the result multiplied by 100 to convert to a percentage.
For example, if we have sales by 120 and in the same period we have gained profits by 30, using the formula: (30/120) x 100, we can say that the profitability of the company with respect to sales was 25% or, in other words, the profits of the company accounted for 25% of sales.