Some considerations on the profitability and earnings of a business unit
Dear readers, when we talk about profits we refer to the return obtained by the capital of what has been invested for the start of a business unit. It is important to keep in mind that the profit can be short, medium or long term, which is necessary according to my point of view that the company everything it generates is reinvested so that it is formed and capitalized before acquiring as owners a profit, because, if it does not have a sustainable return at the time to start acquiring profits can decapitalize the company.
In this sense, Gitman and Zutter (2012), state that profitability allows the analyst to evaluate and determine the company's profits at a level determined by sales at a certain level of assets or the investment of the owners, which is of great importance for the owners, creditors and the management of the increase in profits, giving profits in the market.
That is, through the profitability of a company we can determine the profits that have been generated in a certain time, since it is important to evaluate the costs that have been incurred in order to know if the profits are greater than the expenses. It is for this reason that it is of utmost importance to analyze each of the sales, expenses and income that are presented and thus know how to identify if it is feasible and the result of the investment is favorable and indicates a large percentage of profits.
It is also important to consider that a company must have good liquidity, which is nothing more than the capacity of a business unit to cover all the debts that arise, whether it is the payment to suppliers, loans, among others. Liquidity allows determining if the company can meet and be solvent with all its commitments, since it is a way to verify if the company is giving favorable results. On the other hand, other benefits that can be obtained when the money is reinvested is that the company grows in inventory and can acquire equipment or machinery to optimize production processes, which can guarantee that its capital is strengthened..
To conclude, it is necessary to emphasize that if the money is not reinvested and the corresponding profits are not taken, this could cause a destabilization since the company is not in the capacity to generate profits since all that is obtained must be destined to cover the production costs,
Gitman, L. and Zutter P. (2012). Principles of financial management. EDIC MEXICO