Financial Education - Indicators of economic stability and investment profitability
At the corporate or state level, the level of economic stability depends on the profitability obtained by the organization, which in turn is subject to two factors that constitute, so to speak, the two levers to be used to boost the profitability of the investment.
The greater or lesser profit margin obtained on each sale (stability on sales), and the greater or lesser use made of the assets to generate sales (asset turnover).
In view of this, the same asset profitability can be achieved with very different combinations of both factors. This depends, on the one hand, on the sector in which the company operates. But within the same sector, it also depends on the business model chosen.
From this scenario, it is worth examining that in order to evaluate the levels of stability, some authors propose that the return on income measures the relationship between prices and costs, a higher value means a more prosperous situation for the company, since a higher profit is obtained for the company's sales volume.
As for the overall return on the investment made in the company, it is calculated by dividing the net profit by the total assets, this level is an indicator of great importance since it allows measuring the effectiveness of the management in obtaining profits with its available assets.
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