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Profitability

Profitability is an entity's ability to generate profit relative to a base such as revenue or capital employed. Compare profit with revenue to examine margins and with capital employed to assess the return generated on financing. Use consistent definitions and compare like periods. Strong profitability does not necessarily mean that receivables will be collected in time to pay suppliers. Compare ratios with suitable peers as well as with the entity's own prior results.

Worked example

A 20% gross margin indicates 20 of gross profit per 100 of revenue.

Common mistake

A single ratio cannot show liquidity, cash generation or the reason for a change.

Where it appears in your exams

QualificationExamRelationshipPeriod
ACCA F3 Supporting July 2027–August 2028
ACCA FA Direct September 2026–June 2027
ACCA FR Direct Official assessment-window verification pending
ACCA K1 Direct July 2027–August 2028
CIMA BA3 Direct Official assessment-window verification pending
FIA FFA Direct September 2026–June 2027

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