Profitability/Profitability Analysis Grade

The profitability grade shows how well a company’s profitability, as measured by return on assets, compares with its sector. It measures not only raw profitability, but whether a company’s ROA is consistent and improving.

Origin

We use the raw profitability numbers in our database, gathered from primary documents such as annual reports, and run them through a proprietary formula. Then we rank companies within their sectors to determine their grades.

Benefit

This grade encapsulates the most important information about profitability into a single rating which allows easy comparisons between companies.

For the Pros

The profitability grade consists of three components, which are weighted to arrive at an overall profitability grade:

  1. Raw Profitability: We look at the average level of a company’s returns on capital over the past five years. The higher the better.

  2. Trend: We reward companies whose returns on capital are trending upward.

  3. Consistency: We reward companies with consistent returns on capital, and punish those with volatile profits.