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is
a
measurement
of
.
It
is
not
an
absolute
number
.
Rather
,
it's
a
metric
used
to
determine
the
scope
of
a
company's
profit
compared
to
the
size
of
the
and
ultimately
its
success
or
failure
.
Profitability
can
tell
key
stakeholders
whether
a
company
can
its
position
in
the
market
and
continue
to
grow
.
It
is
the
extent
to
which
a
company
earns
a
profit
.
There
are
two
parts
to
a
company's
profitability
:
and
expenses
.
As
such
,
a
company
is
profitable
if
its
revenue
exceeds
its
.
While
profitability
is
a
concept
,
profit
is
an
amount
.
The
term
profit
,
on
the
other
hand
,
refers
to
the
amount
of
money
a
company
earns
after
accounting
for
expenses
during
a
period
.
This
can
be
a
week
,
month
,
quarter
,
or
year
.
To
determine
a
company's
profit
,
use
the
following
formula
:
Profit
=
Total
-
Total
Expenses
So
if
a
company
earns
$1
million
in
revenue
and
has
expenses
of
$500
,
000
,
it
earns
a
profit
of
$500
,
000
.
You
can
find
a
company's
revenue
and
expenses
,
along
with
its
profit
,
on
its
statement
.
No
matter
the
size
or
scope
of
the
business
or
the
industry
in
which
it
operates
,
a
company's
objective
is
always
to
make
a
profit
.
Remember
:
a
company
can
generate
a
but
remain
.
There
are
several
factors
that
come
into
play
when
it
comes
to
a
company's
profitability
.
Most
of
these
can
be
shaped
by
the
company
and
its
management
team
while
others
may
not
necessarily
be
easy
to
control
.
We've
highlighted
some
of
the
key
determining
factors
of
profitability
below
.
Costs
can
eat
away
at
a
company's
profits
.
They
can
also
spell
the
difference
between
being
profitable
or
not
.
That's
why
it's
important
for
companies
to
do
their
research
.
Conducting
focus
groups
during
the
startup
phase
means
companies
will
have
the
right
idea
of
what
kinds
of
products
and
services
consumers
want
and
ensures
that
products
don't
stay
on
the
shelves
for
too
long
.
Consumer
demand
generates
production
.
Knowing
what
consumers
want
and
producing
those
products
and
services
can
help
companies
achieve
profits
.
And
the
more
companies
sell
,
the
more
profitable
they
may
become
,
especially
if
their
sales
outweigh
their
expenses
.
Being
more
productive
may
help
keep
companies
afloat
.
This
doesn't
mean
you
have
to
spend
more
to
be
more
profitable
.
In
fact
,
it
could
mean
just
the
opposite
.
Companies
can
accomplish
this
by
making
improvements
to
and
increasing
manufacturing
.
For
instance
,
companies
may
consider
increasing
their
production
goals
and
/
or
upgrading
their
production
equipment
and
facilities
.
This
is
one
factor
that
companies
may
not
be
able
to
control
.
However
,
it's
still
a
challenge
they
should
be
aware
of
and
meet
head
-
on
.
Businesses
that
operate
in
the
same
industry
and
provide
similar
products
and
services
can
eat
away
at
each
others'
profits
.
This
can
decrease
their
profitability
as
well
.
Staying
ahead
of
the
competition
,
diversifying
,
and
/
or
releasing
new
product
lines
can
help
boost
profits
and
keep
companies
profitable
.
As
noted
above
,
profitability
is
a
measure
that
is
commonly
expressed
as
a
ratio
.
The
following
are
the
most
common
profitability
ratios
used
in
the
corporate
world
:
:
This
ratio
measures
a
company's
profitability
as
a
percentage
of
the
total
revenue
it
keeps
as
a
profit
.
Put
simply
,
the
profit
margin
indicates
the
percentage
of
total
sales
a
company
keeps
as
a
profit
.
Profit
margins
come
in
various
forms
,
such
as
gross
profit
margin
and
net
profit
margin
.
)
:
Return
on
assets
expresses
a
company's
profitability
compared
to
its
total
assets
.
Put
simply
,
it
indicates
how
well
a
company
can
generate
a
profit
relative
to
its
asset
base
.
To
calculate
ROA
,
divide
the
company's
net
income
by
its
total
assets
.
)
:
This
ratio
tells
stakeholders
how
profitable
a
company
is
based
on
its
ability
to
generate
a
profit
.
A
high
return
on
equity
indicates
that
a
company's
management
is
working
efficiently
by
generating
income
and
growth
through
its
equity
financing
.
ROE
is
calculated
by
dividing
net
income
by
shareholders'
equity
.
:
This
metric
expresses
a
company's
profitability
based
on
a
company's
operations
.
It
does
not
factor
in
expenses
,
such
as
interest
,
taxes
,
depreciation
,
and
amortization
.
Companies
with
a
higher
profitability
ratio
are
considered
more
profitable
than
comparable
ones
with
lower
ratios
.
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