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The Business Engineer
profitability analysis!
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profitability analysis!

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Gennaro Cuofano's avatar
BE
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Gennaro Cuofano
Aug 18, 2024
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The Business Engineer
profitability analysis!
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In a post-low interest rates world, which has been going on for the last decade and more, we're finally getting into an economy converging to higher interest rates.

What does that imply? Simply put, profitability becomes, again (and as it should be), the driving force for the development of a business.

Indeed, in the last fifteen years, many (primarily tech) companies were motivated to inflate their valuation by pushing business models that crashed under the weight of a high-interest economy!

Profit-seeking for a business in the marketplace is a simple objective function that enables it to find sustainable arbitrage opportunities.

It's an incredible and essential market signal, as at scale, it enables the development of an ecosystem comprised of business models that will stick with time...

That is why I want to introduce you to a straightforward profitability framework that helps you assess any company's profitability within a few minutes.

It starts by looking at two simple variables (revenues and costs) and drills down from there.

This helps us identify which part of the organization has a profitability issue and strategize from there.

A quick intro to profitability

To understand profitability, you need to comprehend how financial statements work.

financial-statements

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