Profit as a basic profitability indicator used by companies has the following drawbacks:
- profit does not equal net inflow of money, costs do not equal expenditures and incomes do not equal receipts
- profit includes the results of operations that are ad-hoc and will not be repeated in the future
- various methodologies particularly in the area of:
- depreciation and amortization
- different rates of taxation in various countries
- different accounting standards (IFRS, US GAAP etc.) can treat issues very differently
- profit is easy to manipulate (so called "window dressing") - e.g. by using different methodologies and their changes, delays in issuing documents
These facts make profit less comparable mainly between different entities, but also during comparisons in a time series.
Therefore, it is advisable to see the profit in the context of other indicators such as gross margin, total sales, cash flow, financial analysis ratios etc.