Which metric measures the profitability of a media and entertainment companys core business?

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When evaluating the profitability of a business, many leaders look primarily (or only) at the amount of revenue coming in. While this is certainly an important measure for determining success, there are other, often overlooked metrics that impact profitability—details leaders may only become aware of when sitting down to review their financial situation with an advisor.

Even if your business enjoys steady incoming revenue, you need to look at all the factors that may be impacting your bottom line. Below, 15 Forbes Finance Council members share some telling metrics that can give business leaders a more accurate view of their true profitability.

1. Costs Of Ongoing Work

Many companies struggle to match revenue with costs for ongoing work; accordingly, the income statement is lumpy and violently different from month to month. Layering in a solid accounting process for identifying and recording work in process and reviewing revenue at the month-end close often swings results, leading to a more accurate reporting of profit and loss than relying on a purely “cash basis” evaluation. - Matthew Goldston, PKF Texas

2. Value Of Business Assets And Reserves

I always look at the total value of my business assets and reserves on a weekly basis. If I am net free cash-flow positive each week, my assets and reserves should always be growing. A company that thinks it is profitable but is not seeing its assets and reserves increasing is misinformed. I track this weekly, and I always want to know what causes any increase or decrease. - Jerry Fetta, Wealth DynamX

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3. Value Versus Profitability

I’ve seen so many clients get hung up on profitability rather than value. Profitability can give the illusion of success. If you spend all of your time and money chasing profits rather than growing value, you’ll never reach your potential. Instead, you’ll reach retirement and find your income just ceases. Creating value could provide you with an asset that could be sold to fund your retirement. - Justin Goodbread, WealthSource Partners, LLC

4. Labor Costs

Inefficient management of labor costs can stifle a company’s profitability even as the company turns a profit and expands into new markets and areas of growth. Business leaders can assess inefficiencies to identify opportunities to cut costs, such as by reevaluating the efficiency of their third-party vendors. Lowering production costs will make your company even more profitable in the long run. - Mara Garcia, Phonexa Holdings, LLC

5. Owner Compensation

Owners can be compensated in numerous ways, sometimes before or after business taxes are calculated. This can make a huge difference on a business’ earnings before interest, taxes, depreciation and amortization (EBITDA), which can impact covenants with creditors. For sole proprietors, S corps and LLCs, the tax consequences can be monumental. - Todd Sixt, Strait & Sound Wealth Management LLC

6. Current Versus Historic Costs

Most metrics are calculated on a lag. You can easily get into a situation where you think you are more profitable than you are. If you have locked into long-term deals or pre-orders, your pricing might not have kept up with costs, so you look more profitable than you are. Therefore, make sure all profit metrics are adjusted for current costs before you make decisions. - Aaron Spool, Eventus Advisory Group, LLC

7. Credit Standing

Some companies overlook details such as interest expenses or customer acquisition costs. However, businesses often discount the power of building business credit. You can start by simply establishing net 30 accounts under your business with companies such as Staples. Setting up a Duns and Bradstreet is also beneficial, as anyone seeking to understand your business credit will likely look there first. - Antoine Sallis, Pacc 10 Enterprise

8. Customer Acquisition Costs

Most businesses are surprised by how expensive it is to attract and acquire new customers. A lot of companies overlook client/customer acquisition costs. To compute this figure, divide the funds spent to get new customers by the number of customers over the evaluation period. Improve CAC through leveraging conversion metrics, offering more for less or developing an effective CRM process. - Jared Weitz, United Capital Source Inc.

9. Free Cash Flow

Free cash flow is a factor you can’t afford to overlook. Your business can show a profit on the books, but uncollected receivables, a lack of credit or an unfortunate combination of both can quickly cascade into a bad situation. By having a clear hold on actual free cash flow, preferably with daily reporting, a business owner can avoid being surprised and “caught short” by these issues. - Bill Keen, Keen Wealth Advisors

10. Cash Conversion Cycle

Don’t overlook your company’s cash conversion cycle—the amount of time between when you pay your vendors for goods and services and when your clients pay you. The income statement may look great and accounts receivable may be high, but if your customers are taking too long to pay, then you are essentially acting as an interest-free credit provider to them. - Glenn Hopper, Sandline Global

11. Customer Feedback

Customers are critical to the success of any business; however, business owners should not rely solely on customer service but should rather revalidate or review customer feedback. Find a feedback validation system that works for you. If a company is concerned with the quality of its products, it should also be concerned with the quality of its relationships with the people who buy its products. - Neil Anders, Trusted Rate, Inc.

12. Company Culture

One thing that I believe is understated and can be correlated to a company’s profitability is its culture. It is harder to measure, but a company’s culture impacts every area of the business, including its bottom line. - DeLynn Zell, Bridgeworth Wealth Management

13. Discretionary Owner Spending

A commonly missed metric is discretionary owner spending. I’ve seen businesses that were struggling while the owner was driving an expensive car and had a large boat. Owners need to understand that it’s their responsibility to cut costs—including their own—if times get tough. Hacking expenses and letting employees go won’t endear the enterprise to the remaining employees if the owner isn’t also making sacrifices. - Christopher Hurn, Fountainhead Commercial Capital

14. Inventory Value

How valuable is your inventory? Are you tracking your inventory turns? Do you track how long inventory has been sitting in your warehouse? You may need to write off inventory that will hurt your profitability in each period if you have inadequate inventory reserves. Analyze your inventory and plan accordingly so you can accurately report your profit from year to year. - Dave Sackett, Visibility Corporation

15. Debt Interest Rate

While many ancillary metrics are used to analyze a company’s profitability, the interest rate of debt is by far the most overlooked. Debt is often leveraged when starting a business; “it takes money to make money.” Lenders require compensation from borrowers for fronting initial capital. If payments are neglected, business owners will be squeezed. - JD Morris, RHC 21 LLC (a SPE Fund)

16. Waste

When I was growing up, my dad always said, “Profits hide all ailments.” Businesses often overlook waste when profits are good. There’s an assumed efficiency when profits are at all-time highs or margins are good. The point is, though, that if you can’t control costs during good times, then you’ll get killed by them in bad times. - Michael Jay Markey, Legacy Financial Network

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