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Expenses and Profitability

Revenue and growth are important, but they are not the whole story. Growth is not the same thing as profitability. If revenues rise, but expenses rise by even more, profitability suffers. In order to develop and reformulate business strategies, managers must also be able to break down costs. Which costs are high and which are under control? Were profits low because of the effect of a one-time event that caused expenses to be temporarily high, or are the causes more systemic?

Analyzing costs generates much-needed feedback on how the company is doing. This information is essential to enable managers to decide how t...

From

Cover of Financial Literacy for Managers: Finance and Accounting for Better Decision-Making

Note

You may have heard the saying “You have to spend money to make money.” This lesson looks at expenses−the costs that a business incurs to earn revenue−and different ways of evaluating them.