Method and system for analyzing the use of profitability of an organization

Abstract

Disclosed is a method and system implementing a useful algorithm as a tool for analyzing the use of profitability of an organization. The system calculates the profitability related to: the change in the level of revenues, the change in the operating leverage, and the change in the equity financing of total assets, for a fiscal period, or a series of fiscal periods. The three calculations are then summed to result in a total profitability ratio. The total profitability ratio is also equal to the Net Income divided by the Total Revenues of the subject organization for a given fiscal period. Multiplying the total profitability ratio by the total anticipated revenues for a given fiscal period results in a profit amount that has been or must be attained in order to achieve a targeted revenue growth and targeted financial ratios related to operating leverage and to equity to total assets. The system is both descriptive and prescriptive in that it can be used to analyze both past and future fiscal periods, as well as the current fiscal period. For the past and the current fiscal periods, the system can show how profit generated was utilized. For future fiscal periods, the system can show how much profit must be generated in order to achieve specified goals, or how changes in one or more variables will effect profitability. The system is usable by any organization or individual, for profit or not for profit, incorporated or non-incorporated.

Description

RELATED APPLICATIONS [0001] The present application is a continuation of Ser. No. 09 / 750,405 filed Dec. 28, 2000, which is incorporated herein by reference.FIELD OF THE INVENTION [0002] The invention relates to a method and system for analyzing the use of profitability of an organization. More specifically the invention relates to a method and system of financial analysis for describing in symbolic language, and for calculating the mathematical relationship of, four financial concepts: profitability, revenue growth, asset support of revenue, and equity financing of assets. Most specifically the invention is a useful algorithm used in a method and system for determining how the change in revenues (i.e., current period revenues divided by prior period revenues), the change in operating leverage (i.e., revenues divided by total assets), and the change in the ratio of equity financing (i.e., total equity divided by total liabilities and equity, or divided by total assets) relate to prof...

AI Technical Summary

Benefits of technology

[0014] A still further aspect of the invention is to provide a financial analysis tool to relatively quickly and clearly analyze the financial condition of an organization.

[0015] Another aspect of the invention is to provide a financial analysis tool in which each of the variables may be changed, and with which the effect of the changes on the profitability of an organization may be quickly ascertained.

Problems solved by technology

However, looking at pages of balance sheets, income statements, and cash flow statements can be cumbersome, tedious, and, without analysis, unrevealing.

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