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IIPM BUSINESS AND ECONOMY

You must have heard the story about seven blind men describing an elephant. If you are familiar with economics, you would also know how two economists have at least three opinions between them. Something similar happens when corporate analysts, rocket scientists and equity research professionals start assessing the profitability of a firm. Some would insist that the best way to assess the profitability of a company is to concentrate on cash profits generated by the business; after all, cash is king, queen and emperor, all rolled into one. Some others insist that there is simply no match for the ubiquitous earnings per share (EPS) when it comes to analysing profitability. There are rocket scientists who have an obsessive love affair with numbers and number crunching; for them, the only way to assess profitability is to go for net profits to sales ratio; or even better, net profits to assets ratio. Then there are fans of cash EPS, operating margins, EBDIT (earnings before depreciation, interest and tax) and myriad other indicators. For someone who is not so fond of number crunching and who gets put off by a needless display of complicated tables, most of this debate becomes a futile exercise.

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Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative