Profitability analysis is considered to be one of the best ways to assess the prospects of a business. This analysis helps identify a profitable business from a loss-making business. Against this background, it can be inferred that a profitable business typically has a high level of trade surplus, which will help it meet all of its operating and non-operating costs while delivering high returns.
In this context, it may be wise to invest in shares of a company with a high level of profitability as it normally ensures high returns. Therefore, the easiest and most transparent way to check the profitability of a business is to use accounting ratios. There are a variety of profitability ratios out of which we have selected the net income ratio here as it is the most useful and straightforward measure of profitability.
Net income ratio
There are a variety of profit ratios such as gross income ratio, operating profit ratio, pre-tax profit margin, and net profit ratio, which can be used to determine the profit-generating capabilities of the company. a company. But the net income ratio is widely accepted as the more conservative of the ratios mentioned above.
Net income in simple terms is the total income of a business after deducting all expenses from its turnover. The net income ratio or net profit margin is a ratio between the net income and the sales income of a business. A high net profit ratio shows that the company is able to efficiently manage all of its business activities, including production, administration, sales, etc.
The net income ratio is one of our main selection parameters. However, in order to know the sure winners, we have added a few more criteria to come up with an effective strategy.
Zacks rank equal to # 1: Whether the market is good or bad, stocks with a Zacks # 1 (strong buy) ranking have a proven history of outperforming. You can see The full list of today’s Zacks # 1 Rank stocks here.
Last 12 months sales and higher net income growth than industry X: Stocks that have experienced superior sales and net income growth over the sector over the past 12 months are well positioned to perform well.
Net income ratio for the last 12 months greater than X Industry: A high net income ratio indicates a solid profitability of a business.
High Purchase percentage score above 70: This indicates that 70% of current broker recommendations for action are strong buys.
These few parameters reduced the universe from over 7,665 stocks to just 15.
Here are five of the 15 actions that qualified the screening:
Boyd Games Company BYD owns and operates 22 gaming entertainment properties located in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana, Mississippi and New Jersey. Its 12-month net profit margin is 11.5%.
Foot Locker, Inc. FL is an athletic-inspired footwear and apparel retailer. Its 12-month net profit margin is 11.7%.
Gold Entertainment, Inc. GDEN is a diverse gaming company that provides casino, game distribution and lottery services. Its 12-month net profit margin is 9.4%.
TJX Companies, Inc. TJX is a low cost clothing and home apparel retailer. Its 12-month net profit margin is 5.8%.
Crocs, Inc. CROX is a designer, developer and manufacturer of casual footwear for men, women and children. Its 12-month net profit margin is 35.4%.
You can get the rest of the stocks on this list by signing up now for your 2 week free trial of the Research Assistant and start using this screen in your own trading. In addition, you can also create your own strategies and test them out before you get into investing.
The research assistant is a great place to start. It’s easy to use. Everything is in plain language. And it’s very intuitive. Start your research assistant trial today. And the next time you read an economic report, open the research assistant, plug in your findings, and see what gems come out of it.
Click here to sign up for a free trial of the Research Assistant today.
Disclosure: Officers, directors and / or employees of Zacks Investment Research may own or have sold securities short and / or hold long and / or short positions in options mentioned in this document. An affiliated investment advisory firm may own or have sold securities short and / or hold long and / or short positions in options mentioned in this document.
Disclosure: Information on the performance of Zacks’ portfolios and strategies can be found at: https://www.zacks.com/performance.
Want the latest recommendations from Zacks Investment Research? Today you can download 7 best stocks for the next 30 days. Click to get this free report
The TJX Companies, Inc. (TJX): Free Stock Analysis Report
Foot Locker, Inc. (FL): Free Stock Analysis Report
Boyd Gaming Corporation (BYD): Free Stock Analysis Report
Crocs, Inc. (CROX): Free Stock Analysis Report
Golden Entertainment, Inc. (GDEN): Free Stock Analysis Report
To read this article on Zacks.com, click here.
Zacks investment research