Corporate Profitability Analysis

The efficiency of the business is measured by the amount of profit earned. The greater theprofit the more efficient is the business considered to be. The profit of a business may bemeasured by studying the profitability of investment in it. Profitability is referred to as lendingpower or operating performance of the concerned investment. Profitability is a relative termand its relation with the other factor by which the profit is affected. It is the test of efficiencypowerful motivational factor and the measure of control in any business. In the financialstatement analysis literature a lot of importance has been attached to financial ratios forassessing a firm's financial performance and condition. Items of the income statement aloneor along with the balance sheet items also can generate a number of profitability ratios. Butmany ratios reveal the similar things. The analyst is always at a loss to find out which ratiosto use to determine profitability of a firm. An attempt to determine inter-relationships betweenand among the profitability ratios in order to select a few ratios which can possibly givemaximum information about the profitability of a firm is an empirical issue.