What does it mean for a company to be profitable? Let's dive in 🤿

What does it mean for a business to be profitable?

Simply put, a business is profitable when it makes more money than it spends 💰

A profitable business can easily pay all its expenses and even invest its profits into improving its products and services – or pay its shareholders a dividend 🌟

Meanwhile, an unprofitable business may need help coming up with money to pay their bills, employee wages, and other costs associated with running the business. 🚫

Let’s take a look at two coffee shops, one profitable and one unprofitable ☕

The unprofitable one might not be able to afford paying its baristas or its water bill, and may need to take out loans to fund its operations 💸

The profitable one, however, can not only pay its baristas and bills but also might be able to hire more baristas, add pastries to the menu or buy a new coffee machine to make coffee faster 📈

After a couple of years, the unprofitable coffee shop might go out of business from losing money whereas the profitable one might be growing and thriving 🔄

Investors care about profitability because profitable companies tend to be more stable and resilient against economic challenges, and can invest more into their product and growth 🤝

Profitable companies are also generally easier to value – you can make judgements based on their financial metrics, rather than purely guessing on future profits 🔍

Test your knowledge

When is a business considered profitable?

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What is one thing a profitable business can do with its profits?

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Why is profitability important to investors?

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What could happen to an unprofitable business after years?

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What's next?

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