Acc/400

Evaluate the Profitability in the Company

Team C

University of Phoenix

Theresa Pekron

Acc/400

April 13, 2013.

Introduction

The key to opening and maintaining a small business is determining how much profit is needed to survive. Profit is usually determined using two methods; return on assets and profit margin. The return on assets method compares a business’s total asset bases to the businesses net income. While the profit margin method basically is the calculation of how much the business gained from sales during a period of time. Both methods are useful in determine and forecasting profits for a business. However, a business may never combine an irregular gain or lose to the figures of either method when forecasting future profits.

The profitability of an organization is affected by many different irregular items. The goal of a business is to determine and report the irregular items within the correct accounting period. The profitability of an organization has to also determine and separate irregular items by type to correctly determine profit for a accounting period. The two types of irregular items are discontinued operations and extraordinary items; both may affect the profitability of organization either in a minute or tremendous way. An accurate profitability of an organization without the correct assessment and reporting of all irregular items is not possible.

Shareholders and other external users of financial information will frequently need to evaluate the performance and financial health of an organization. This is done in order to evaluate the achievement of the business, decide any weaknesses of the business, compare current and past performance, and compare current performance with industry standards. Financially steady organizations are desirable, because a financially stable business is one that successfully ensures its capability to generate income for...