04B. Profitability KPIs: Return on Equity

Episode 4 of Building Your Multi-Million Dollar Practice is all about understanding KPIs that measure Profitability and how they impact your clients and your advisory services. There are 7 separate profitability KPIs , but in this episode we’re going to go over three, with more to come next time. This means that we can discuss each metric in depth. What this means is that if there are earnings, or pre-tax profitability, after preferred stock dividends are paid, but before common stock dividends are paid out, this measures how well the company uses this gross pre-tax profitability to reinvest in the company to grow. Now this KPI is commonly looked at for publicly traded companies, but it also is incredibly important for smaller companies. A goal of companies of every size, from small businesses up to large corporations, is growth. And growth requires reinvestment of capital. If a small business does not plan for growth and the cost attached to growth, the business will become stagnant. The formula: (Net Income / Shareholders’ Equity)