According to Professor Novy-Marx, the gross profitability (gross profit/total asset) is a return metric that has the same power as price to book value in prediction cross section returns of a stock.
According to Professor Novy-Marx, the gross profitability (gross profit/total asset) is a return metric that has the same power as price to book value in prediction cross section returns of a stock.
When I compared Bursa Malaysia plantation company, United Malacca gross profitability with that of the sector median, you can see that it clearly underperformed. This underperformance is not so clear cut when you look at ROE.
Moral of the story? Return is one key measure of profitability and I normally look at several return metrics – ROE, ROA, Gross Profitability, NOPAT/Capital to get a better picture.
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