Net Profit

Net profit is a value earned by a business once all associated costs and expenses associated with revenue generated during a period are subtracted. It is technically different depending on the entity formats (legal existence) in business.

Value Investing With Real Estate Investment Trusts – Analysis and Evaluation Techniques

Real Estate Investment Trusts

Real Estate Investment Trusts (REITs) are considered excellent long-term investments. There are two underlying reasons. First, under the Internal Revenue Code, they are considered income tax free investments. To comply, the REIT must distribute at least 90% of all net income earned to shareholders. The shareholders pay income tax on those dividends received. Because of the dividend distribution requirement, REITs have excellent dividend yields. This is why REITs are considered perfect investments for widow and orphan funds whereby cash is necessary to fund the monthly payments to annuitants. Secondly, similar to any real estate investment, time is beneficial to the overall value of the REIT’s fixed assets.

This in-depth article explains these two elements of real estate ownership and how they are applied to publicly traded REITs. The dividend yield formula is covered in detail and how it is applied with REITs due to the every increasing dividend payout REITs generate. Net income is then covered and an actual example is illustrated discussing how to interpret annual and interim income statements REITs provide. There is also an explanation to calculating cash flow related to the income statement. Finally, with regard to the underlying assets of real estate, the fixed assets turnover rate is explained and how it is applied to REITs. There is an expected norm for the turnover rate.

From this information, buy/sell trigger points are covered along with an example for a club member.

Residential Construction: Average Net Profit After Taxes Equals 9.4%

Residential Construction

The residential construction industry’s average net profit after taxes equals 9.4% during 2019. The top four companies in the United States built and sold 151,366 homes with an average sales price of $376,703. Each home netted after income taxes $35,464 of profit. This equates to an average net profit of 9.4% in the residential construction industry. 

Performance Ratios

Performance Ratios

The most common thought among business owners, consultants, investors and students is the ‘bottom line’.  The proper word is of course ‘PROFIT’.  In business, the single number one reason to operate is to make a profit. 

Operating Profit Margin – Formula and Understanding

Operating Profit Margin

Operating profit margin refers to the value earned as a percentage of net sales. The operating profit is often referred to as earnings before interest, taxes, depreciation and amortization, (EBITDA). This is a misleading reference as operating profit is actually defined differently by industry sector. EBITDA is used primarily in valuing businesses.

Net Profit

Net Profit

No other business term is so misunderstood, misstated, misleading or deceiving as the words ‘net profit’. Accounting defines net profit as the amount earned after all associated costs and expenses are subtracted from the associated sales. The larger or more public the company the more reliable the dollar value as stated on the bottom line. But in small business, the more likely the value is inaccurate as stated in the financial report.  

Net Profit Margin

Net Profit Margin

The net profit margin reflects the profitability of the company as a percentage of net sales. It is one of the performance ratios used in evaluating business. Interestingly, some consider it the most important ratio. These users of business ratios take a very simplistic approach towards business evaluation.