Profit is a number which, while important, can be meaningless without reference to the amount of assets (capital) used to generate that profit. Once profit is known, it is useful to consider this as a percentage in terms of profitability.
For example, if a business had $1 million of assets, then a $100,000 profit would mean profitability of 10% ($100,000/$1,000,000=10%) which is good. If they made the profit from $10 million of assets, then their profitability is only 1% ($100,000/$10,000,000=1%).
The profitability figure can be compared to alternative uses of that capital and it is also important when assessing if a business is meeting its cost of capital (for example interest repayments).
Profitability and wealth creation
The profitability of a business has significant implications for the wealth of owners, even to those who indicate that return-on-capital is not important to them. A business achieving a return of 2% a year (after tax with all profits reinvested) will take 35 years to double in size, whereas a business achieving a 7.2% return will double in just 10 years. The second example is far more favourable when considering wealth creation.
Meat goat income
In considering profit within a goatmeat enterprise, income and expenses must be considered.
The income from a goatmeat enterprise comes from goat sales as well as the changes in livestock inventory across the production year. The income is based on the quantity of product produced and the price received for that product.
Enterprise income = Quantity of product produced (kg) x Price/unit of product ($/kg)
Quantity of product sold
The quantity of goatmeat sold can be measured in kilograms of goatmeat produced per hectare (kg/ha). This is directly related to the number of animals that can be stocked sustainably and their weight gain across the production year.
Stocking rate (short-term; the number of livestock in a paddock at any given time) and carrying capacity (long-term; the number of animals that can be sustained on an area of land) are crucial drivers of profitability. The more animals grazed and the higher their weight gain, the greater the potential quantity of meat produced (kg/ha) and the more product fixed costs can be offset against.
It is important, however, to optimise rather than necessarily maximise stocking rate. Local factors such as ground cover and total grazing pressure must be considered in determining the carrying capacity of the land and stocking rates within a goatmeat enterprise.
Other important factors which influence the quantity of product sold and enterprise throughput include weight gain, breeding doe fertility to maximise pregnancy rates, kidding rates and kid survival rates.
Price per kilogram (market price)
The price received per unit of product sold has a direct impact on income in a meat goat enterprise. The higher the price per unit of product, the greater potential for increased enterprise income.