Investors have made Apple (NASDAQ: AAPL) worth more than $2 trillion dollars. But how profitable is the company?
That depends on how you measure profit. If you want a raw number, calculating a company's gross income is a good place to start. That's just the difference between its total sales and its total cost of goods sold, ignoring its other costs of doing business. This figure is useful for comparing the basic profitability of a company's core business with that of other companies like it. It's also useful if you track it over time. If you see a company's gross profit swinging wildly from one period to the next, that can be a sign its core business is either highly volatile or, in the worst case, is not well managed. Which if you're going to invest in the company, is probably something you ought to know.
As an investor however, that's not enough information to tell you how profitable the company really is. For that, you need to take its operating costs, how much it pays in interest expenses, how much it pays in taxes, and its other income and expenses into account. Doing that will tell you the company's net income (sometimes called its net earnings), which is the real bottom line. A company with positive net income is making money and a company with negative net earnings is losing money.
For comparing companies, you will find its useful to standardize these measures of profitability by dividing each by the company's total sales revenue and expressing the result as a percentage. For gross income, the result of that math is called the gross profit margin and for net income, the result is called the net profit margin. These percentages will let you directly compare the profitability of companies with very different amounts of profit. And of course, will let you assess trends in a single company's profitability performance if you follow it over time.
All that said, we've built a tool to make it easy for anyone to do this math. All you need is the business' income statement. In the tool below, the default data comes from Apple's December 2022 10-K SEC filing [also available in PDF format], so the tool's results will tell you just how profitable Apple was at the end of 2022. If you're reading this article on a site that republishes our RSS news feed, please click through to our site to access a working version of the tool.
Of course, you're more than welcome to substitute the financial data for other companies in the tool to assess their profitability.
We've made a point of the importance of tracking a company's gross and net profit margins over time, so to that end, we'd like to point you to a very useful resource. Macrotrends features an online application that will chart a company's gross, operating and net profit margins over its recent history using information from its database. Follow this link to see where they've done that for Apple's profit margins going back to December 2009.
Image Credit: Photo by Natasha Hall on Unsplash. The book being read in the photo is Profit First by Mike Michalowicz, which has the enchanting subtitle "Transform Your Business from a Cash-Eating Monster to a Money-Making Machine". At this writing, the book has 7,091 reviews on Amazon, with 85% giving it five stars. Goodreads gives it a 4.27 rating, 51% of which are five star reviews. Most of the critical reviews point out the whole concept of the book could be summarized in five pages or less. Or perhaps just one blog post, but that's a challenge for another day.
Labels: business, investing, personal finance, tool
Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:
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