Profitability and PLC (Public Companies) Business

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bethf6769
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#1
Report Thread starter 2 years ago
#1
Why is profitability an important measure for Public company’s?

I get why profit is important in general for any business but why a public company in particular?
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ymoug
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#2
Report 2 years ago
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I'd assume it was because they are just that - a public limited company

As you may or may not know, Public limited companies differ from Private limited companies (ltd) as they are required to publish their accounts every 6 months (i believe). Profitability, as you said, is important to most companies but more so PLCs as their accounts are published - through this analysts are able to establish market leaders, profit share, market share and other stats like that.
Why is this important? Because companies need to establish dominance and power in their market otherwise they will have to battle for survival - look at the likes of microsoft which once had over 90% market share (still here today in it's prime) vs the likes of tmobile and orange who were near the bottom of the mobile carriers in the UK who were struggling to compete (2008/9) and so merged to form the new, well known, EE.

A plc with low profitability is also disadvantaged as it is not attractive to shareholders. Investors and shareholders look for companies which have very high profit margins (low cost to manufacture but high sell price). If the margin is low e.g. at 20% profitability it is likely to be ignored in comparison to a company with a 200% profitability - therefore disadvantaging smaller PLCs as they have not reached optimal levels of economies of scale yet whereas the larger companies have.
Look at the benefits of shareholders and investors for a company to understand why this is important..

hope this helps
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