Method and system for analyzing the use of profitability of an organization

Abstract

Disclosed is a method and system implementing a useful algorithm as a tool for analyzing the use of profitability of an organization. The system calculates the profitability related to: the change in the level of revenues, the change in the operating leverage, and the change in the equity financing of total assets, for a fiscal period, or a series of fiscal periods. The three calculations are then summed to result in a total profitability ratio. The total profitability ratio is also equal to the Net Income divided by the Total Revenues of the subject organization for a given fiscal period. Multiplying the total profitability ratio by the total anticipated revenues for a given fiscal period results in a profit amount that has been or must be attained in order to achieve a targeted revenue growth and targeted financial ratios related to operating leverage and to equity to total assets. The system is both descriptive and prescriptive in that it can be used to analyze both past and future fiscal periods, as well as the current fiscal period. For the past and the current fiscal periods, the system can show how profit generated was utilized. For future fiscal periods, the system can show how much profit must be generated in order to achieve specified goals, or how changes in one or more variables will effect profitability. The system is usable by any organization or individual, for profit or not for profit, incorporated or non-incorporated.

1 . A method for analyzing the use of profitability of an organization comprising the steps of: 
 performing a first calculation to determine the relationship between a change in revenue growth and profitability;    performing a second calculation to determine the relationship between a change in operating leverage and profitability;    performing a third calculation to determine the relationship between a change in the ratio of equity to total assets and profitability; and    summing said first, second and third calculations to yield a profitability ratio.    
   
   
       2 . The method of  claim 1  comprising the steps of: 
 determining the relationship between a change in revenue growth and profitability using the equation:     ((BE/BA)×((CR/PR)−1))/((PR/BA)×((1+((CR/PR)−1)))).   whereby BE represents the beginning total equity of the fiscal period to be analyzed; BA represents the beginning total assets (or total liabilities plus total equity) of the fiscal period to be analyzed; CR represents the total revenues of the fiscal period to be analyzed; and PR represents the total revenues of the fiscal period immediately preceding the fiscal period to be analyzed.    
   
   
       3 . The method of  claim 1  comprising the steps of: 
 determining the relationship between a change in the operating leverage and profitability using the equation:     ((EE/EA)−(BE/BA))/(PR/BA)   whereby EE represents the ending total equity of the fiscal period to be analyzed; EA represents the ending total assets (or total liabilities plus total equity) of the fiscal period to be analyzed; BE represents the beginning total equity of the fiscal period to be analyzed; BA represents the beginning total assets (or total liabilities plus total equity) of the fiscal period to be analyzed; and PR represents the total revenues of the fiscal period immediately preceding the fiscal period to be analyzed.    
   
   
       4 . The method of  claim 3  wherein EA is adjustable to reflect any increase in total non income-statement financing sources of said organization, wherein said adjustment must be zero or greater.  
   
   
       5 . The method of  claim 1  comprising the steps of: 
 determining the relationship between a change in equity financing and profitability using the equation:     ((EE/EA)/(PR/BA))×(((PR/BA)/(CR/EA))−1)   whereby EE represents the ending total equity of the fiscal period to be analyzed; EA represents the ending total assets (or total liabilities plus equity) of the fiscal period to be analyzed; BA represents the beginning total assets of the fiscal period to be analyzed; PR represents the total revenues of the fiscal period immediately preceding the fiscal period to be analyzed; and CR represents the total revenues of the fiscal period to be analyzed.    
   
   
       6 . The method of  claim 5  wherein EA is adjustable to reflect any increase in total non income-statement financing sources of said organization, wherein said adjustment must be zero or greater.  
   
   
       7 . The method of  claim 1  comprising all results and data generated by the steps of the method of  claim 1 .  
   
   
       8 . The method of  claim 1  comprising using results and any changes in said first, said second, and said third calculations to analyze the financial status of an organization.  
   
   
       9 . A method for analyzing the use of profitability of an organization comprising the steps of: 
 performing a first calculation to determine a relationship between a change in revenue growth and profitability;    performing a second calculation to determine a relationship between a change in operating leverage and profitability using the equation:     ((EE/EA)−(BE/BA))/(PR/BA)   whereby EE represents the ending total equity of the fiscal period to be analyzed; EA represents the ending total assets (or total liabilities plus total equity) of the fiscal period to be analyzed; BE represents the beginning total equity of the fiscal period to be analyzed; BA represents the beginning total assets (or total liabilities plus total equity) of the fiscal period to be analyzed; and PR represents the total revenues of the fiscal period immediately preceding the fiscal period to be analyzed;    performing a third calculation to determine a relationship between a change in equity financing and profitability; and    summing said first, second and third calculations to yield a profitability ratio.    
   
   
       10 . A method for analyzing the use of profitability of an organization comprising the steps of: 
 performing a first calculation to determine a relationship between a change in revenue growth and profitability;    performing a second calculation to determine a relationship between a change in operating leverage and profitability;    performing a third calculation to determine a relationship between a change in equity financing and profitability using the equation:     ((EE/EA)/(PR/BA))×(((PR/BA)/(CR/EA))−1)   whereby EE represents the ending total equity of the fiscal period to be analyzed; EA represents the ending total assets (or total liabilities plus total equity) of the fiscal period to be analyzed; BA represents the beginning total assets (or total liabilities plus total equity) of the fiscal period to be analyzed; CR represents the total revenues of the fiscal period to be analyzed; and PR represents the total revenues of the fiscal period immediately preceding the fiscal period to be analyzed; and    summing said first, second and third calculations to yield a profitability ratio.    
   
   
       11 . The method of  claim 10  wherein the step of performing a second calculation to determine the relationship between a change in the operating leverage and profitability further comprises using the equation: 
       ((EE/EA)−(BE/BA))/(PR/BA) whereby BE represents the beginning total equity of the fiscal period to be analyzed.    
   
   
       12 . The method of  claim 2  further comprising all results and data generated by the steps of the method of  claim 2 .  
   
   
       13 . The method of  claim 3  further comprising all results and data generated by the steps of the method of  claim 3 .  
   
   
       14 . The method of  claim 5  further comprising all results and data generated by the steps of the method of  claim 5 .  
   
   
       15 . The method of  claim 9  further comprising all results and data generated by the steps of the method of  claim 9 .  
   
   
       16 . The method of  claim 10  further comprising all results and data generated by the steps of the method of  claim 10 .  
   
   
       17 . The method of  claim 11  further comprising all results and data generated by the steps of the method of  claim 11.