Calculating Profitability

[oyarde]

I thinkthat is possible too , but more likely , only for companies that have products that are neccessities .

[rpwi]

By looking at Income Statements, Cash Flows, Balance Sheets, Statements of Equity of other businesses with similar models and analyzing their individual obstacles, ideas, etc. Will this be enough to judge the profitability of a business model?

Yes and no. It can give you a good idea. But calculating profit is tricky stuff (which is why you see tax earnings and corporate earnings vary). The problem is that income income statements are so easy to manipulate. Many corporations play shell games in which companies own companies...and the only purpose of this is to report the taxes in one company as being flat or negative. Depends on the type of company... Any company with long term expenditures and investments is always trickier to figure out because of the variability and subjectivity in which they can deprecate assets and expense out R&D over time. Really anytime you have to 'estimate' the duration of an asset or investment...you'll get into accounting trickery. Same goes with the health of assets (like bad loan assets). Then there is the matter of odd-ball variables like goodwill from buyouts...this can be a mess.

If you are looking to invest...probably the best measure is predictability...if the company's earnings are not erratic that is probably a good sign.

[pauljmccain]

Income statement manipulation isn't quite as rampant as you suggest. If any of the above actions are undertaken, they are reported by law in the filing documents right next to the income statement. And they are accounted for in the income statement.

Just look at the operating income if you want to see a number without any depreciation and amortization included... EBITDA. Simple.

[teacherone]

Is he trying to measure the business model of a future business to estimate predicted profit? Or just trying to read a balance sheet?

[palm]

Is he trying to measure the business model of a future business to esitmate predicted profit? Or just trying to read an balance sheet?

I know how to read a balance sheet, I'm interested in finding out what it cost similar businesses monthly and my first period would be scaled to that number relative to the saturation of the market searching for my service, competition and resources, if that makes any sense.

In order to do this and know how much capital to invest, I will have to know how much I will make. If at all possible.


Im gonna start a kick start campaign.

[osan]

I'm no expert but I assume it's very difficult to judge the future profitability of a "model" without lots of market research. How else would you begin to make any judgments about a business that doesn't yet exist?

The instrument is called a "proforma" and is basically a best guess. The better your analysis, the more impressed will be investors, for instance. If it does not exist there is no way to predict how it will do. Some guesses are on, some are not.