The second of the 5-chapter Science of Business Wealth financial performance evaluation is profitability growth.
Practitioners of our Business Health Assessment mention “I can show the results but how can I help the improvement process”. This diagnostic evaluation process is aimed at helping you through that journey.
Remember you goal is to identify where improvement or opportunity lies. The business owner will know how to take your analysis and make it actionable.
Profitability growth is measured by the increase in profit per revenue $ from one period to the other.
The core components of profit performance is:
- The performance of gross profit from the previous period to the current period.
- The way operating costs have behaved from the previous period to the current period.
Profitability is considered in relation to revenue growth.
The question is “has profitability improved irrespective of whether revenue has grown or declined”
Profitability growth is a good indicator of how scalable the business is.
This part of the diagnostic series deals with operating cost performance.
- Segment the operating costs into Fixed and variable costs
- Horizontal analysis
- Vertical analysis