Profitability:
The income statement is one of the major financial statements used by accountants, financial institutions and business owners to determine entity profitability.
The income statement is sometimes referred to as the profit and loss statement (P&L), statement of operations, or statement of income.
The income statement is important because it shows the profitability of a company during the time interval specified in its heading.
In the tables that follow, the medians of each market segment were taken and converted into percentages for presentation. Of the 157 companies that reported there were none that only reported working in one segment. Each participant provided 2 or more services with 82% of the respondents reporting at least 4 of the services.
| Description | Commercial | Residential | Wood Destroying | Bed Bug | Others | Total |
| %of Income | %of Income | %of Income | %of Income | %of Income | %of Income | |
| Revenues | 100.00% | 100.0% | 100.00% | 100.00% | 100.00% | 100.00% |
| Direct Costs | ||||||
| Technician Labor | 20.70% | 21.7% | 17.37% | 22.30% | 18.92% | 20.20% |
| Payroll Taxes | 1.98% | 2.0% | 1.74% | 2.39% | 2.22% | 2.06% |
| Health Insurance Technicians | 1.26% | 1.58% | 1.51% | 2.61% | 0.57% | 1.50% |
| Employee Benefits | 0.70% | 0.7% | 0.75% | 0.78% | 0.76% | 0.74% |
| Subcontract Costs | 2.00% | 2.0% | 1.75% | 2.47% | 1.95% | 2.04% |
| Total Direct Payroll Cost | 26.64% | 27.98% | 23.12% | 30.55% | 24.42% | 26.54% |
| Vehicle Leasing | 3.60% | 3.60% | 3.60% | 3.60% | 1.10% | 3.11% |
| Vehicle Fuel | 2.24% | 2.13% | 1.93% | 2.70% | 2.83% | 2.37% |
| Vehicle Repair and Maint. | 1.35% | 1.30% | 1.21% | 1.80% | 1.06% | 1.34% |
| Vehicle Insurance | 0.65% | 1.0% | 1.08% | 1.21% | 1.06% | 0.99% |
| Total Auto Expense | 7.84% | 8.03% | 7.82% | 9.31% | 6.05% | 7.81% |
| Materials | 8.00% | 6.3% | 15.40% | 2.00% | 10.72% | 8.13% |
| Supplies – Direct | 0.58% | 0.7% | 0.39% | 0.99% | 0.24% | 0.57% |
| Materials – Other | 0.57% | 0.31% | 0.34% | 0.48% | 0.43% | 0.44% |
| Equipment Expense | 0.08% | 0.10% | 0.06% | 1.69% | 0.08% | 0.40% |
| Total Material Cost | 9.23% | 7.41% | 16.19% | 5.16% | 11.47% | 9.54% |
| Liability Insurance | 1.10% | 1.10% | 1.44% | 1.99% | 1.73% | 1.47% |
| Workers Comp Insurance | 1.66% | 1.28% | 0.79% | 1.76% | 0.56% | 1.20% |
| Other Direct Costs | 0.75% | 0.70% | 0.62% | 1.11% | 0.54% | 0.75% |
| Total Other Costs | 3.51% | 3.08% | 2.85% | 4.86% | 2.83% | 3.42% |
| Total Direct Costs Calculated | 47.22% | 46.50% | 49.98% | 49.88% | 44.77% | 47.31% |
| Gross Profit | 52.78% | 53.50% | 50.02% | 50.12% | 55.23% | 52.69% |
| Selling & Marketing: | |
| Selling Expense | |
| Wages – Sales | 2.21% |
| Commissions – Sales | 0.87% |
| Payroll Taxes – Sales | 0.31% |
| Health Insurance – Sales | 0.18% |
| Total Selling Expense | 3.57% |
| Marketing Expense | |
| Marketing – Traditional | 1.70% |
| Marketing – Digital | 3.50% |
| Marketing – Other | 1.10% |
| Total Marketing Expense | 6.30% |
| Total Selling & Marketing Expense | 9.87% |
| General & Admin: | |
| Officer Wages | 5.00% |
| Office Wages | 7.00% |
| Management Wages | 4.00% |
| G&A Empl Benefits – Health | 0.30% |
| G&A – Payroll Tax | 1.22% |
| Total General & Admin Wages | 17.52% |
| Office Rent | 2.00% |
| Computer Expense | 1.80% |
| Office Supplies | 0.50% |
| Office Printing | 0.20% |
| Office Postage | 0.36% |
| Bank Service Charge | 0.51% |
| Credit Card Charges | 1.34% |
| Professional fees – Accounting/ Legal | 0.94% |
| Recruiting Expenses | 0.05% |
| Payroll Preparation Fee | 0.13% |
| Dues & Subscriptions | 0.30% |
| Donations | 0.29% |
| Travel & Entertainment | |
| Meals & Entertainment | 0.27% |
| Travel | 0.15% |
| Total Travel & Entertainment | 0.42% |
| Utilities | 0.34% |
| Rubbish Removal | 0.02% |
| Telephone Expense | 0.16% |
| Wireless Communications | 0.57% |
| Depreciation | 2.43% |
| Other General & Admin | 2.73% |
| Total General & Admin | 32.61% |
| Total Expense | 42.48% |
| Operating Profit | 10.21% |
While the financial performance varied from company to company, the tables above depict the median company results for each category. These results are in line with the percentages we see for the various service lines in our portfolio of clients to whom we provide accounting services.
Profitability Ratios:
Profitability ratios reflect the overall effect of a firm’s managerial efficiency:
These are ratios that are indicators of a firm’s breakeven point and the amount of money that is made once breakeven is achieved given a certain level of sales.
They reflect the results of decisions that management has made in order to maximize profitability.
They are a class of financial metrics that are used to assess a business’s ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time.
Gross Profit%
This ratio shows us how efficient a firm is at providing services before paying sales, marketing and fixed costs. In my opinion Gross Profit is the single most important financial ratio.
Operating Expense %
If Operating expenses exceed gross margin you will operate at a loss. If they are truly fixed, the fixed cost percentage will fall as a firm grows.
Profit Margin
This is what you work for – net income
EBITDA
Earnings before interest taxes depreciation and amortization. This is cash flow!
Return on Assets
This is one that, for comparison purposes, works for companies that employ a high value of assets. From my prospective this ratio is better suited to looking at your portfolio of investments as opposed to fixed assets. Our reasoning is that our biggest asset in the service business is our people. With the exception of construction, most firms don’t employ high values of assets but rather they do use a high value of direct labor.
Return on Equity
This ratio answers the question: What is the return on that piece of the balance sheet called equity? Again, it is great to do comparisons with other firms, but equity is such loose concept in a small, privately held businesses.
| Profitability Formula
Gross Profit % GP / Revenue Operating Expense % Operating Expenses / Revenue Profit Margin Net Income / Revenue EBITDA Earnings before Interest, Taxes, Depreciation / Amortization Return on Assets Net Income / Total Assets Return on Equity Net Income / Total Equity |
| Description | Total Company | Commercial | Residential | Wood Destroying | Bed Bug | Others |
| Gross Profit | 52.69% | 52.78% | 53.50% | 50.02% | 50.12% | 55.23% |
| Description | Total Company |
| Operating Expense | 42.48% |
| Profit Margin | 10.21% |
| EBITDA | 13.74% |
| Return on Assets | 54.00% |
| Return on Equity | 2.10% |
