Profitability metrics

Analyzing Financial Statements in Python

Rohan Chatterjee

Risk Modeler

Profitability ratios

Metric of how a company can generate profits from its revenue
Some efficiency ratios are also profitability ratios:
- Gross margin = $\dfrac{\text{Total Revenue - Cost of Goods Sold}}{\text{Total Revenue}}$
- Operating Margin = $\dfrac{\text{Total Revenue - Operating Expenses}}{\text{Total Revenue}}$

High current ratio leads to high profitability?

This is a scatter plot showing the relation between gross margin and the current ratio of tech companies. The relation is positive.

Make the scatter plot

sns.scatterplot(data=dataset_tech, x="current_ratio", y="gross_margin",
                hue="Company")
plt.xlabel("Current Ratio")
plt.ylabel("Gross Margin")
plt.show()

This is a scatter plot showing the relation between gross margin and the current ratio of tech companies. The relation is positive.

Scatter plot with all the companies

This is a scatter plot showing the relation between gross margin and the current ratio of all the companies in our dataset. The relation is unclear from a cursory glance.

Add a line of best fit

This is a scatter plot along with a line that best fits the points showing the relation between gross margin and the current ratio of all the companies in our dataset. The relation is unclear from a cursory glance.

Making scatter plot with a line of best fit

sns.regplot(data=dataset_tech, x="current_ratio", y="gross_margin")
plt.xlabel("Current Ratio")
plt.ylabel("Gross Margin")
plt.show()

Let's practice!

Analyzing Financial Statements in Python