Looking at profitability is a very important step in understanding a company. Profitability is essentially why the company exists and a key component of deciding to invest or to remain invested in a company. There are many metrics involved in calculating profitability, but for this article, I will look at Southern Company’s (SO) earnings and earnings growth, profit margins, profitability ratios and cash flow.
Through the above-mentioned four main metrics, we will understand more about the company’s profitability. And by comparing this summary to other companies in the same sector, you will be able see which has been the most profitable.
Earnings and Earnings Growth
1. Earnings = Sales x Profit Margin
- 2010 – $17.456 billion x 11.69% = $2.040 billion
- 2011 – $17.657 billion x 12.84% = $2.268 billion
Southern Company’s earnings increased from $2.040 billion in 2010 to $2.268 billion in 2011 or an increase of 11.17%.
2. Five-year historical look at earnings growth
- 2007 – $1.734 billion, 10.2% increase over 2006
- 2008 – $1.742 billion, 0.46% increase
- 2009 – $1.708 billion, 1.99% decrease
- 2010 – $2.040 billion, 19.44% increase
- 2011 – $2.268 billion, 11.18% increase
In analyzing Southern Company’s earnings growth over the past five years, you can see that overall the company’s earnings have been trending up with a slight decrease in 2009. Overall, the 2011 earnings are 30.80% higher than 2007.
To read more: http://seekingalpha.com/article/786411-southern-company-profitability-analysis
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Hedge funds broadly and the value guys in palricutar are piling into the stock, both on the numbers above and I think they are betting on a regime change pop. The risk is the value story has been true for years yet the multiple has continued to drop.It is hard to believe the market puts almost a 50% premium on a dollar of profit from IBM, who are a no-growth financial engineering company.