Is Profitability or Growth More Important for a Business?

Both profitability and growth are important and necessary for a company to survive and remain attractive to investors and analysts to be successful and stay in business. Profitability is essential for a company's survival, but long-term viability requires development.

Profitability

The revenue after all expenses linked to the manufacture, production, and sale of items have been eliminated is referred to as a company's net profit. Profit is equivalent to "cash in the bank." It is either distributed to the company's owners or shareholders, or it is reinvested in the company. Profit is the fundamental purpose of any firm, and profit may be the only capital available to a company that does not have investors or finance from the outset. A company's survival and performance will be threatened if it lacks sufficient cash or financial resources. Although gauging a firm's profitability, both current and future, is crucial in evaluating the organization, no business can operate for an extended amount of time without generating a profit. Although borrowing can help a company remain solvent for a while, it is ultimately a liability, not an asset. An income statement depicts a company's profitability as well as its costs and expenses over a specified period, usually a year. The income statement is needed to calculate profitability and to calculate a profitability ratio. A variety of profitability ratios can be generated and used to assess a company's financial health.

Growth

It's critical to determine and focus on profitability early on in a company's life cycle or start-up. Market and sales growth, on the other hand, are the methods to achieve that initial profitability. After a firm has passed the start-up period, identifying expansion possibilities should be the next priority on its to-do list. A firm's growth is essentially an expansion, resulting in the company being larger, expanding its market, and ultimately becoming more successful. Some relevant variables, such as overall revenue, the number of employees, market share, and turnover, can be used to measure growth. Even if a firm's current profitability is satisfactory, growth possibilities should always be pursued because they provide opportunities for increased overall profitability and keep analysts and future, or current, investors interested in the company. Knowing a company's current state is critical to developing a successful growth strategy. A sudden effort to establish if a firm has too many weak areas, such as performance, sales, or marketability, can contribute to the company's demise. Consolidation of the existing market is the first phase, which entails locking down a company's current status before attempting to change it through growth.

Mapping Growth & Profitability

Growth and earnings will not happen by themselves unless there is intentionality and a plan in place. Each could be a prelude to the other, and you'll need both at some point. It's fantastic if you can prioritize growth and find the investors, users, and team to back you up. Simply said, you should have everything in place to turn actual net profits on a dime if circumstances change. Demonstrate to investors your strategy for turning a profit. Just please remember that you must accomplish this without destroying your base of users. If you have to modify the things that made you great and helped you develop (such as low prices, high value, faster delivery, greater support, and first-class customer service), many of your users will leave. If you prioritize profits first, make sure you have a strategy in place for long-term growth that doesn't eat into your profit margins. To account for brokers, affiliates, and merchants, you may need to start with bigger profit margins than you need.

Conclusion

When it comes to business success, profitability and expansion go hand in hand. Profit is essential for a company's basic financial existence, whereas development is essential for profit and long-term success. Investors consider each factor relevant to a particular company.