Understanding the difference Between Profit And Profitability Of A Company

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We often hear the terms profit and profitability used in contexts of a company. The two may sound the same and are freely interchanged, but, they are different from each other and have to be used depending on the context.

Let us than understand the difference between profit and profitability

Profit is absolute. In the sense, when we say that a company reported a net profit of Rs 20 crores, it did actually as per its financials reports.

Understanding the difference Between Profit And Profitability Of A Company
Now, this is not the case with profitability. The term is more relative. Let us say that Company ABC has undertaken a rapid expansion and there is a hope that its business prospects improve.

We say that there is a hope that company ABC may see an improved profitability. So, here if we examine closely, profitability is not absolute.

In the sense there is no specific figure. The other difference could also be in terms of past, present or future, though not always the case. Profitability is more used in the context of future, while profits could be more used to make a case in the present.

Profits could be used to measure whether a company is profitable, but, it may not always be the case.

Also, when we say profits we may imply, net profits, gross profits or profits before depreciation, interest and tax.

There is no such thing for profitability. We never say gross profitability or net profitability or simply, profitability before interest, depreciation and tax.

When to use profits and profitability

We generally use profitability in a future context. We almost always say the company can be more profitable or the profitability of that company can improve.

Conclusion

So, the basic difference between profits and profitability would be with regards to absolute or more relative. The other would be in context of the future, which is largely associated with profitability.

Goodreturns.in

Read more about: profit, profitability
Story first published: Wednesday, April 13, 2016, 10:06 [IST]
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