Look for Profitability, Not Profits

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A Step A Day, Prof. Partha Mohanram, profitability

The financial turmoil in Wall Street has come in for scores of reviews and comments. Pundits are busy analyzing what went wrong and even at business schools, Professors are re-thinking how they can teach lessons from the recent past to their graduating students. An article in the Boston Globe speaks of how the country’s biggest and best business schools, like the Harvard Business School, Wharton and MIT Sloan, are looking for lessons from all that’s happened. They are trying to incorporate the lessons learned in the curriculum through the latest case studies.

7 Steps to Improve Profitability

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A Step A Day, entrepreneurship, profitability

When I set out on my own as an independent consultant in 2000, one message was writ largely in all that I did. Profitability is the name of the game.

Let me explain for the benefit of budding consultants. There is no point in having a high top line of revenue if your actual income falls sharply because of the weight of expenses required to conduct business. I would prefer, as an independent consultant, to have a lower top line but with higher profitability.

Do You Know Your Firm’s Financials?

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A Step A Day, profitability, ratios

In a meeting with the management team of a growing company, one figure kept coming up all the time and seemed to have got the maximum attention- growth in revenues. It seemed the leaders were determined to blast their way to a stage where they could think of an IPO. For this they were working towards increasing their sales as much as possible. It looked as if they wanted to show the world how much they had grown and just “how big” they were.

It soon became clear that in this one sided drive, they were not keeping sight of other vital measures- particularly in the long term- such as Return on Equity, Return on Capital Employed and profit per employee.