What is more important for a business, profitability or growth?

To be successful and remain in business, both profitability and growth are important and necessary for a company to survive and remain attractive to investors and analysts. Profitability is, of course, critical to a company's long-term survivability. A company's net profit is the revenue after all the expenses related to the manufacture, production and selling of products are deducted. Profit is "money in the bank." It goes directly to the owners of a company or to shareholders, or it is reinvested in the company. Profit, for any company, is the primary goal, and with a company that does not initially have investors or financing, profit may be the corporation’s only capital. Without sufficient capital or the financial resources used to sustain and run a company, business failure is imminent. The bottom line is that no business can survive for a significant amount of time without making a profit. That being the case, the measurement of a company's profitability, both current and future, is critical in the evaluation of the company.

Although financing can be used to sustain a company financially for a time, it is ultimately a liability, not an asset.

An income statement shows not only a company’s profitability but also its costs/expenses during a specific period of time, usually over the course of a year. To compute profitability, the income statement is essential to create a profitability ratio. A number of different profitability ratios can be calculated from which to analyze a company's current financial condition.

Determining and focusing on profitability at the beginning, or start up, of a company is essential. On the other hand, growth of market and sales is the means to achieving that initial profitability. After a company moves beyond the start-up phase, the next item of focus should be growth. The identification of opportunity growth should become the next item of importance on any company’s goal list. Growth for a business is essentially expansion, making the company bigger, increasing its market and ultimately making the company more profitable. Measuring growth is possible by looking at a number of pertinent statistics, such as overall sales, number of staff, market share and turnover. The interrelation of profitability and growth is illustrated by the fact that a basic operating principle is that growth can best be evaluated by examining profit and total sales.

Though present profitability of a company may be good, opportunities for growth should always be explored, since this offers opportunities for greater overall profitability and keeps or moves the corporation into the line of sight of analysts and potential or current investors. Knowing the present condition of any company is essential to creating a successful growth strategy. If a company has too many weak areas, such as performance, sales or marketability, a premature attempt at growth can ultimately collapse the business. A first step is the consolidation of current markets, essentially meaning the lockdown of the current state of a company before attempting to alter it with growth.

Profitability and growth go hand in hand in regard to business success. Profit is key to basic financial survival as a corporate entity, while growth is key to profit and long-term success.



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