Profitability Analysis

Analyse the company's ability to generate profit and visualise the breakeven point

Daniel Walls avatar
Written by Daniel Walls
Updated over a week ago

Contents:


What is the Profitability tool?

This tool is designed to evaluate a company’s ability to generate profits and manage its fixed and variable costs.

It also serves to visualise a company's breakeven point and the margin of safety between current revenue levels and the breakeven point.

The Profitability analysis tool is accessible from the left sidebar in the Analysis tools by selecting the 'Profitability' icon.


Understanding the Profitability tool

The Profitability tool gives you insight into:

Key numbers

Three key profitability margins are displayed at the top of the tool: Gross profit, Operating profit, and Earnings before Interest and Tax (EBIT).

You can click on each of these key numbers to view a trend graph of the results, how the results were calculated, and additional data.

💡Pro Tip: If you select the above key numbers and then select ‘expand formula’ in the menu that opens, you can view the exact values used to calculate the key number results.

Breakeven point

The Breakeven point represents the revenue level at which the business neither makes a profit nor takes a loss. In other words, if the company were to make one more dollar, it would profit, but if it made one less, it would incur a loss.

Fathom calculates the Breakeven point as:

Breakeven Point = Fixed Costs / (1 - (Variable Costs / Revenue))

💡Pro Tip: If the fixed or variable costs mounts do not seem correct, then you may need to check in the classifications of Cost of Sales and Expense accounts in ‘Step 3 - Chart of Accounts’ to ensure all accounts are classified correctly.

Margin of Safety

The Breakeven Margin of Safety represents the margin between the actual sales level and the breakeven point. In other words, it is the amount by which sales can drop before losses begin to be incurred. The higher the margin of safety, the lower the risk of incurring losses.

Top Ten accounts

Underneath the total Revenue and total Costs key numbers, you can select to view the top ten Revenue and Cost accounts by volume in descending order to see which accounts are generating the most income, and how the business is managing its major expenses and costs of sales.


Changing the period or date range

In the top right corner of the KPI Summary, you’re able to change the period and date range displayed in the tool. The first bolded smart text option allows you to switch between viewing monthly, quarterly, or yearly results.

The second bolded smart text option enables you to choose which month, quarter, or year’s results you are viewing.

If you imported data through the current month in ‘Step 1 - Update Data’, then you can also view results for month-to-date (MTD), quarter-to-date (QTD) or year-to-date (YTD) periods, and select the ending month for these periods.


Download a PDF of the KPI Summary

You can download the Profitability tool to PDF from the left sidebar. The download option is located in the bottom left corner.

The Profitability tool can also be added to custom Fathom reports and downloaded as a PDF. You'll find the Profitability tool as an option in the 'Layouts' section of the Report Editor.

💡Pro Tip: You have the option to include a 'Basis of Preparation' or disclaimer statement as a page in PDF downloads. You can add or remove this statement in PDFs and customise the statement. Learn more in our 'Basis of Preparation statement' article.


Next steps

Learn about the next Analysis tools available for additional insights into company or group performance. Or learn about the other areas of Fathom and share your discoveries with others.

What you want to do:

Where to go next:

Analyse the company's cash inflows and outflows

Analyse the company's growth

Use the Breakdown tool for consolidated group or divisional analysis

Invite others into your Fathom account to share insights

Create reports for your company

Begin forecasting in Fathom

💡Pro Tip: The Breakdown tool is only available in consolidated groups or companies that have imported divisions into Fathom.


Additional knowledge & common questions:

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