Written by Small business owners need to monitor profitability trends to follow the course of profit over time. Monitoring the change in direction of profit from one period to the next is important for identifying areas that may require follow up attention.
If a company’s gross profit margin falls steadily over time, the business owner must address declining revenue or rising costs. An upward gross profit margin trend provides a good sign of company financial health. If the net income trends decline, the small business owner may need to take a look at fixed costs to review unexpected expenses.
This “Profitability Trends” dashboard allows business owners to monitor top-line revenue along with two types of profitability trends:
- Gross profit: This is the difference between net sales and costs of goods sold. (Net sales includes revenue plus any returns and discounts.) The gross profit trends are often an indicator as to overall profitability. The chances of making money increase if the company has high gross profit margins.
- Net income: This is the gross profit minus selling and administrative expenses along with any additional expenses and taxes. This is the company’s bottom line.
The “Profitability Trends” dashboard is a very useful tool for small business owners. The most important metrics from the income statement are visualized into an easy to understand format. The tool provides a quick and efficient way to access data and analyze results over time. The right side of the dashboard offers the ability to compare results for two points in time. This type of comparison is useful for identifying how results are changing from the same time last year.
I would be delighted to set up a similar dashboard for your small business. Email me at keri@kerijamescpa.com for a complimentary consultation.
