What financial metric gives a good indication of a company's profitability?

• A. Net income
• B. Return on equity
• C. EBITDA
• D. Cash flow from operations

Answer: (C)

The appropriate choice that indicates a company's profitability is net income. Net income represents the total profit of a company after all expenses, taxes, and costs have been deducted from total revenue. It effectively captures the bottom line of a company’s financial performance, showing how much money is left for shareholders after all obligations are met. This metric is often used by investors and analysts to assess the profitability of a company and its ability to generate profits over a specific period.

Return on equity is a key performance indicator that measures the return generated on shareholders' equity but does not directly reveal overall profitability. EBITDA, while useful for assessing operational profitability without the influence of financing and accounting decisions, does not provide a complete picture of net profitability since it does not account for debt financing and taxes. Cash flow from operations indicates the cash generated from normal business activities but does not directly correlate to profitability as it can be influenced by non-cash accounting items.

Thus, while EBITDA and cash flow from operations provide insights into a company's overall financial health and operational efficiency, net income is the most direct measure of profitability.