This Little-Known Metric Is the Best Measure of Profitability  | | Shah Gilani
Chief Investment Strategist | The world of financial analysis can seem very confusing... or even deliberately so. You've got metrics like net income... earnings... and multiple profitability measures... All are used to assess a company's financial health and likely stock performance. But among these metrics... one has the greatest weight. And it's been my go-to measure of a company's profitability for decades. I'm talking about "net income available to common shareholders." | SPONSORED | | $4,000 in Value, YOURS FREE! The Oxford Club's reigning #1-ranked VIP trading research service beat the S&P's relative performance by 3-to-1 in 2023. This service remains red-hot, booking wins as high as 182% in 2.5 months... 275% in 3.5 months... and 386% in 2.5 months here in 2024. To celebrate this success, we're offering you a FREE bonus year - valued at $4,000 - if you're one of the first 75 to respond before midnight tonight. Click here to see how to claim it asap.  | | | The Starting Point Net income available to common shareholders is almost always overshadowed by its broader counterparts. But it provides a much clearer picture of a company's profitability and value. Net income is the bottom line or profit. It's a fundamental metric that represents the amount of revenue that exceeds expenses. It's calculated by subtracting all expenses, including taxes and interest, from total revenue. Net income is a critical indicator of a company's ability to generate "earnings" from its core operations. And smart investors know earnings are a masterfully massaged metric. Earnings include various measures of profitability, including gross profit, operating profit and net profit. They offer insights into how well a company operates and how efficient it is... But it's impossible to know which version of earnings - and what's in that particular bucket - is being used to calculate EPS, or earnings per share. More Precise Net income available to common shareholders is what I call a "refined metric." It specifically focuses on the portion of a company's net income attributable to common shareholders after deducting preferred dividends. It reflects the earnings generated per share of common stock outstanding. That makes it a crucial metric for investors. By deducting dividends, the number provides a clearer picture of the earnings that can be distributed. Here's why that's important... - Shareholder Value Focus: Shareholders are the primary stakeholders in a company. They want to maximize the return on their investment. Net income available to common shareholders aligns with their interests and provides a clearer gauge of shareholder value.
- Dividend Sustainability: The amount of net income available after accounting is vital in assessing the sustainability of dividend payouts. (That's how I came across the metric more than 20 years ago.) A higher net income available to common shareholders indicates stronger financial stability and ability to maintain or increase dividends.
- Investor Decision-Making: When deciding where to put their money, investors need to consider the potential returns. Net income available to common shareholders serves as a key input in assessing the profitability and growth prospects of a company. It helps investors make informed choices.
While net income and earnings metrics can tell you a lot about a company's financials... net income available to common shareholders is a far more precise measure of profitability and shareholder value. It provides a clearer picture of a company's ability to generate returns for its investors. All investors should use this metric to make well-informed decisions about the stocks they want to buy. I always do. Cheers, Shah Want more content like this? | | | | | | 
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