Running head: INFLUENCE OF PROFITABILITY

Who wants to understand how a company's performance works?

An Analysis of the influence of a company’s data on its profitability

Ndella Diallo

National Taiwan Normal University

Paper presented at the International Conference of the Academy of Human Resource

Development Asia Chapter, Istanbul, Turkey, June 26, 2018

 Abstract

To gain success in business, it is important for global managers to understand how the
performance works by Analyzing the effect of the company’s data on its profitability.
This study was conducted in a specific Senegalese company in Africa, to examine the
effects of its data on the profitability. We’ve collected a total of 42 data from the
company. Intermediate management balances (GIS) was used to measure the Expenses
and the Products. Based on that, we’ve obtained the measurement of the net result and
the profitability also. Correlation Analysis and Regression Analysis reveal that all the
hypotheses were generally supported by the products and not the expenses which don’t
support one of the hypotheses. Therefore, the relationship between net result and
profitability is suspected to be moderated by the effect of Expenses. Implications of
these findings were discussed.

Keywords: Profitability, net result, Expenses, Products, GIS

 Who wants to understand how a company's performance works?

An Analysis of the influence of a company’s data on its profitability

What is performance?

In general, performance is a quantified result obtained in the context of a competition.

At the level of a company, the performance expresses the degree of accomplishment of
the objectives pursued.
A successful business must be both efficient and effective. It is effective when it achieves
the goals it has set for itself. It is efficient when it minimizes the means implemented to
achieve the objectives it has set itself.

How to measure the performance of the company?

Performance is measured by qualitative or quantitative criteria (or indicators). To

measure effectiveness, a criterion is used which expresses a relationship between the
result obtained and the objective pursued. To measure efficiency, a criterion is used
which expresses a relationship between the result obtained and the means used.
To evaluate the performance of a company, it is necessary to take measures at all levels:
financial, economic, social, and organizational. However, the performance usually
depends on the profitability based on financial and economic measures.
accounting experts have proved that profitability is estimated using the net result
obtained. it is practical to study how the net Result contribute the measurement of the
profitability. This Study will require to know the expenses and the Products of the
company.

Theoretical Background and Hypotheses

This section contains literature providing the theoretical framework for the study, along
with the hypotheses that result from the literature.

Net Result

The Net Result represents the wealth created during a period. It measures the
profitability of a company. When the net result is positive, the company made a profit.
Conversely, when it is negative, the company has realized a deficit over the period.
The net result has the main advantage of being a simple and easily understandable
financial indicator.Indeed, it corresponds to the difference between the products and
the loads.
In which situations to use the net result?

When starting a business: the net result measures the future and overall profitability of
the company. This data will appear in the forecast balance sheet and will be studied by
all readers of the business plan.
When taking over a business: the net result gives an indication of the economic and
financial health of the target company.
At the end of a financial year: the net result is a statement in the income statement and
the balance sheet. Both documents are used for financial analysis of a business.

Is the net result a reliable performance indicator?

In fact, the company's performance must come first and foremost from its current
operations. It is therefore preferable to study the level and evolution of net income over
several years in order to get an idea of the profitability of the activity.

Profitability

Profitability is one of four building blocks for analyzing financial statements and
company performance as a whole. The other three are efficiency, solvency, and market
prospects. Investors, creditors, and managers use these key concepts to analyze how
well a company is doing and the future potential it could have if operations were
managed properly.
The two key aspects of profitability are revenues and expenses. Revenues are the
business income. This is the amount of money earned from customers by selling
products or providing services. Generating income isn’t free, however. Businesses must
use their resources in order to produce these products and provide these services.
Resources, like cash, are used to pay for expenses like employee payroll, rent, utilities,
and other necessities in the production process. Profitability looks at the relationship
between the revenues and expenses to see how well a company is performing and the
future potential growth a company might have.
Companies with high long-term profitability are particularly sought after as they provide
financial security for their shareholders.

What is profitability for?

profitability makes it possible to measure the effectiveness of the economic tool that a
company uses for its day-to-day operations. It shows the economic return of capital
borrowed from shareholders for productive purposes.
When this profitability decreases, it means that the net profitability of economic activity
decreases or becomes negative, which augurs the worst.
Profitability is at the heart of economists' thinking:
A.B Abel and F. Hayashi particularly stressed the costs of adjusting productive capital
when business leaders model the profitability of an investment. According to them, the
optimal investment results from the arbitrage between the increased profits generated
by the investment and the costs (organization, training, etc.) caused by its installation.
E. Malinvaud (the father of the imbalance theory) for his part emphasized the
importance of profitability calculations in investment decisions. According to him, the
decision to invest is to determine a rate of utilization of average production capacity
based on anticipated demand. Profitability is even lower than anticipated demand is
modest and uncertain (uncertainty).

The effect of the net result of the company on the Measurement of Profitability

Net result is the difference between the products and the expenses of the company.
Products and expenses are the components of a company's income statement. The
income statement (or CR) is an accounting document showing all the products and
expenses of a company during a financial year. Like the balance sheet and the
schedules, it is part of the financial statements of the companies. The income statement
is intended to inform the performance of a company. By focusing on its variations in
wealth (gains and losses), it allows to release its net result (profit or deficit). The income
statement is important for two types of audience. On the one hand, it allows the tax
administration to see the profit made by a company. On the other hand, it allows
potential financiers to know their performance and profitability.

Income and expenses in the income statement:

The essential element which constitutes the products of the profit and loss account is
the turnover. We also find the operating income production capital, work in progress ...),
financial products (dividends, income from cash investments ...) and exceptional
products (asset disposals for example). The expenses shown in the income statement
consist of purchases of goods, raw materials and changes in inventories. It also includes
overheads (real estate rent, insurance, advertising, maintenance, telecommunications
costs ...), taxes and duties, personnel expenses (social charges for example), financial
expenses (interest on loans, overdraft ...) and exceptional charges.
Net income is the last indicator in a company's accounting records. This is an important
indicator that gives information on the overall performance of a company but is not
essential in the context of a financial analysis.
Hypothesis1: We have significant relationship between all the samples (expenses ,
products , net result , profitability)

Profitability represents the evaluation of the performance of resources invested by

capital providers. It is therefore the evaluation tool favored by financial analysis.
In our study, we can estimate the profitability according to the net result. The net result
might be a loss or a gain.
The losses are considered as not profitable. The gain might be a bit profitable quite
profitable , Profitable ,or very profitable.

Hypothesis2: There is a statistically significant difference of net result between

profitability’s groups

The net result is the difference between the products and the expenses. Depending on
the net result we obtain, we can estimate the profitability.

Hypothesis3: Expenses and Products have significant effects on Profitability

Methods

This section describes the methods used in carrying out the study.

Data Collection and Sampling

Our research is based on a quantitative method to collect data. This is a rather general
research that can be relative to the company. For each company the performance works
in a different way. We thus concentrate our research on a real estate company for which
we have researched in order to determine how its data affect its profitability.The
company in question is named KOUN 111. It is an innovative Senegalese real estate
agency, in Africa, attractive and accessible to all.
It was recently founded in September 2017 by Ndiouga Diallo. His Strategic Business
Areas (SADs) are Constructions and rentals for his own account, Sale of real estate
(houses, apartments, lands).
To develop the company’s performance, our research is a way to understand some of
the dark elements of its business. Proper conversion of Data into Taiwanese dollar had
been done. The data collection manager in the company has also provided us with
forecast data. Our study will also help the company to know how to position itself in the
future in based on its performance.
Here is the table about the descriptive statistics of the samples.
Variable Categories Count Percentage (%)
Months -Current 7 16.7
Oct17-Mar18
-Forecast 35 83.3
Apr18-Mar21

Products -Products 42 100

Expenses -Expenses 42 100

Net result -Earning 26 61.9

-Loss 16 38.1

Profitability -not profitable 16 38.1

-a bit profitable 8 19
-quite profitable 7 16.7
-profitable 6 14.3
-very profitable 5 11.9

Descriptive statistics showed that in this study the focus is more on The months for the
Forecast (83.3%) development of the company than on the current months (16. 7%).The
net result that is the difference between products (100%) and expenses (100%) permit to
check whether we have a loss (38.1%) or a gain (61.9%) for the month. If the net result is
negative, then we have a loss, however, if it is positive, we have a gain for the month.
For profitability, the losses are considered as not profitable (38.1%). The gain might be a
bit profitable (19%) , quite profitable (16.7%), Profitable (14,3%), or very profitable
(11.9%).

Measurement

What are the main tools available to managers to measure performance data?
Intermediate management balances (GIS).
This tool, put forward by all accountants, includes the various elements of the income
statement, presenting them in such a way as to show six distinct levels of results (value
added, gross operating surplus (EBITDA), operating income, current profit before tax,
exceptional income and, lastly, net profit for the year).
The main advantage of GIS lies in their standardization (their method of calculation and
their presentation are fixed by the General Chart of Accounts), allowing the comparison
of results over time and especially compared to those of other companies in the same
sector. activity, the same size or the same geographical location. Different sectoral ratios
based on GIS are thus made public frequently.
The downside of the medal, the main disadvantage of GIS is to present the results
excessively accounting (no specific reprocessing, monitoring the chart of accounts) and
therefore not to adapt to the particularities of each company.
In order to overcome this excessive rigidity, multiple retreatments are possible to refine
the analysis of the results obtained by the GIS.

Findings and Discussions

The results of the various analyses are reported in this section.

Correlation

Pearson correlation analysis was performed to test the hypothesis of the relationship
among all study variables. The correlation matrix is presented in Table 1. These
correlations are to indicate the relationship between the variables, such as expenses,
products,net result and profitability
 Table 1

Correlations Among all variables

How much is How much are How much How is the
the netresult? the Products? are the business
expenses? activity?
How much is the Pearson correlation 1 0.585 -0.504 0.913
Netresult? Sig 0.000 0.001 0.000
N 42 42 42 42

How much are the Pearson correlation 0.585 1 0.406 0.526

Products? Sig 0.000 0.008 0.000
N 42 42 42 42
How much is the Pearson correlation -0.504 0.406 1 -0.468
Expenses? Sig 0.001 0.008 0.002
N 42 42 42 42
How much is the business Pearson correlation 0.913 0.526 -0.468 1
Activity? Sig 0.000 0.000 0.002
N 42 42 42 42

The result indicated that, expenses have a significant negative correlation with the net
result (r=-.504, p<.01) and the Profitability ((r=-.468, p<.01)

Apart from these two negative correlations, all the variables are positively correlated.
The correlation analysis reveals the relationship between all the variables.

Compare Mean-One Way ANOVA

Mean Comparison was used to test the hypothesis of the difference of net result
between profitability’s groups. The results are presented in Table 2 and Table 3.
 Table 2

Descriptives
95%confidence Interval for
Mean
N Mean St. Deviation St. Error Minimum

Lower Bound Upper Bound

Not Profitable 16 19500.641 2257222.835 564305.709 -3917525.15 -1511946.85 -6400000
A Bit Profitable 7 22695.71 154123.791 58253.317 83754.98 368836.45 340
Quite Profitable 7 984240 289535.314 109434.062 716464.50 1252015.50 735000
Profitable 5 5028152 1008428.236 4508982.817 3776022.96 6280281.04 3999829
Very Profitable 7 12906428.57 2427129.159 917368.593 10661708.49 15151148.65 7550000
Total 42 1917231.76 5800759.416 895076.610 109587.88 3724875.65 -6400000

Table 3

Anova
Sum of Squares df Mean Square F Sig.

Between Groups 1.263E+15 4 3.158E+14 100.303 0.000

Within Groups 1.165E+14 37 3.148E+12
Total 1.380E+15 41

The results show that there was a statistically significant difference of net result (how
much is the net result?) between profitability’s groups as determined by one-way
ANOVA (F (4,37) = 100.303, p = .000).

Multiple regression

Multiple regression was used to test the hypothesis of the Effect of expenses and
products on profitability. Table 4 present the results of the multiple regression analysis.
Table 4

Regression Results

Profitability
Model 1
Beta
Expenses -0.01
NetResult 0.907
Products 0.897

F
97.175
Sig
0.000
R square
0.833

As seen we can see it Model explains 83,3% of variances in (Profitability) and it is

significant. Variables (net result and Products) have a significant effect on (Profitability)
and the other variable (Expenses) has not this significant effect on (Profitability).

Discussions and Conclusions

The study was about analyzing the relationship of profitability and net result in a
company and then examining the impact of this relationship on the Expenses and the
Products. All these variables are related between them.
The net result and the products have a significant effect on profitability however,the
expenses have not this significant effect on profitability.
Based on this study, the result indicate that The Profitability of a company indeed is
influenced by the net result. Products can help having a good profitability by influencing
the net Result.the more the products increase ,the better is the profitability. However
the expenses can moderate the profitability. In fact the more the expenses increase ,the
more the net result will reduce and so profitability also.
The findings show that performance is a key to success and advancement of a
company. Knowing how it works according to a given company is a strong necessity. It
is important for any company to master its performance by managing its profitability
which is influenced by the net result. the more the net result increases, the better is the
profitability . However the net result can be limited by the expenses.
The products , help to make this result more important in order to increase the degree
of profitability and thus to obtain a satisfactory performance.

Limitations

This study has several limitations. First, measurement equivalence of the study
constructs was not tested among many companies, we have only limited our study in a
given company.
Secondly, although the sample size was sufficient for analysis, it remains relatively
limited.
For future research ,it will be better to expand our study area further and also to collect
a larger number of random sampled data.

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