Profitability is linked to obtaining a profit from an investment.
The dictionary of the Royal Spanish Academy ( RAE ) defines profitability as the condition of being profitable and the ability to generate income (benefit, gain, profit, utility). Profitability, therefore, is associated with obtaining profits from a certain investment .
Profitability usually refers to the economic gains obtained through the use of certain resources . It is usually expressed in percentage terms.
Let's take the case of a bakery that needs to invest 15 pesos to produce each kilogram of bread that it sells for 20 pesos . This figure includes raw materials, electricity and gas costs, taxes , etc. In this way, the bakery obtains a profit of 5 pesos for each kilogram of bread that it sells.
Examples of profitability
Ultimately, economic profitability is known as the return obtained from investments. In other words: profitability reflects the profit generated by each peso (dollar, euro, yen, etc.) invested. Let's suppose that the ratio of a company X is 25% : this means that the firm obtains a profit of 25 pesos for every 100 pesos it invests .
Profitability can also be associated with the interest generated by a financial investment . A bank can offer a 10% return to clients who deposit money in a fixed term. In this way, the person who deposits 1,000 dollars in a fixed term of thirty days will receive 1,100 dollars at the time of maturity. Therefore, he will earn 100 dollars because the guaranteed return on the investment he made ( 1,000 dollars in a fixed term) was 10% .
Companies often aim to maximize their profitability.
The concept applied to the social
Social profitability , on the other hand, is a phenomenon that occurs when the development of an activity offers benefits to society in a magnitude greater than the losses, regardless of whether it is economically profitable for the promoter. This concept is the opposite of economic profitability, defined in a previous paragraph, since in this case it only matters whether the activity is beneficial for its promoter.
A widely used example to illustrate the concept of social profitability is the railway system : a railway line is economically profitable if it allows the company that manages it to obtain income greater than the expenses necessary to maintain it, that is, if the sale of tickets serves to compensate the investment and provides profits; on the other hand, it is socially profitable if society can save an amount greater than said expenses.
In this example, citizens who use the train line perceive an economic benefit, since they avoid the financial investment required to buy and maintain their own vehicles, but they also save time, since public transport does not require any type of maintenance.
Profitability and responsibility
Social profitability also appears in the private enterprise sphere, where it is possible to differentiate the following three types of responsibility :
* Primary social responsibility : refers to the need or obligation to correct the damage that its operation may cause. This is very common in companies whose operations have a negative impact on the environment;
* secondary social responsibility : while the former is a mandatory responsibility in many countries, the latter is optional, and can be seen, for example, in charity campaigns for the most disadvantaged, which many companies use as propaganda to gain the admiration of the public ;
* Tertiary social responsibility : less direct than secondary, tertiary social responsibility becomes evident when a company decides to act in favour of social profitability in fields that are not necessarily linked to its main activity, but rather seeks to improve its environment through various means.