PLEASE NOTE: the following is an excerpt from "20 Competitive Metrics Every Business Needs to Know," which is now available as a free download here.
Performance Metric: PROFITABILITY
Definition: THE DIFFERENCE BETWEEN TOTAL REVENUE AND TOTAL EXPENSES
Importance: Sometimes profit is meaningful, sometimes it isn't.
Insight: Because it can be manipulated via the timing or choice of various accounting methods, it can say more about owner/management priorities and/or industry traditions than a company's ability to generate revenue while controlling costs. For this reason, analysts rely on common-sized, comparative ratios to put "profitability" in context so they can more accurately gauge how effectively or ineffectively a company is being operated.