23 Profitability performance measures
‘Profit is not the legitimate purpose of business. The legitimate purpose of business is to provide a product or service that people need and do it so well that it’s profitable.’
James Rouse, US real estate developer, civic activist and philanthropist
In a nutshell
Profit is often thought to be the main purpose of a business. However, even more important is the amount of profit relative to the investment required to generate that profit.
Therefore, return on investment, as opposed to profit alone, is a superior measure of commercial success.
To achieve long-run viability a business must ensure that its return on investment is greater than its cost of finance.
Need to know
Why is this important?