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How to understand and analyze financial indicators?
Revenue shows how much money you received for a certain period before deducting any expenses.
Net profit shows the company’s earnings over a certain period after deducting all costs.
Net profit = Revenue – cost of sales* – fixed costs
*Cost of sales is variable costs.
Profitability shows what percentage of revenue you have after deducting all fixed and variable costs. The larger this percentage, the better. The general rule, it is good when the profitability exceeds 25-30%. However, some lines of business cannot achieve such profitability due to their specifics.
The payback period shows the number of months or years that are necessary to return your initial investments.