MODULE 8

Module 8: Assessment of the Company's Profitability

This module shifts our focus from basic survival (liquidity) to wealth creation. By calculating profitability ratios, we measure how efficiently a company translates its sales, assets, and equity into profit. You will analyze profit margins to understand expense management, and rates of return to evaluate if the company is creating true value for its shareholders.

STEP 1: OBTAIN THE ANNUAL REPORT

Open your company's Consolidated Annual Report. Today, the Income Statement (Profit & Loss) is your primary focus, but you will also need the Balance Sheet for your final calculations.

🔽 (Hint): Which data points do I need?

From the Income Statement: Revenue (Sales), Gross Profit, Operating Profit (EBIT), and Net Income.

From the Balance Sheet: Total Assets and Total Equity.

STEP 2: DATA MINING

Transcribe the necessary figures into SECTION A of your printed Worksheet. Make sure you are using the correct fiscal year.

🔽 (Hint): Glossary of Profitability Terms

Revenue (Sales): The top line. Total money brought in before any expenses.

Gross Profit: Revenue minus the direct costs of producing goods (COGS).

EBIT (Operating Profit): Earnings Before Interest and Taxes. The profit from core operations.

Net Income: The bottom line. The final profit after all expenses, taxes, and interest are paid.

STEP 3: CALCULATIONS AND INSIGHTS

Complete SECTIONS B and C on your printed Worksheet. You will calculate three Margins (Gross, Operating, Net) and two Returns (ROA and ROE). Pay close attention to the ROE—is the return high enough to justify the risk of investing in this company?

STEP 4: SUBMIT YOUR REPORT

Review your profitability ratios. Would you invest your own money in this business? Submit your team's findings to the Crisis Center using the form below.

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