Investors always look to focus on companies with a high level of profitability irrespective of market conditions. In this context, profitability analysis is used to identify a profitable company from a loss-making one. Using this analysis, we can measure the way a company is ensuring effective cost management and still providing healthy returns to its investors.

Here, we have used the concept of accounting ratios to evaluate a company’s profitability. There is a variety of profitability ratios, from which we have chosen the most successful and frequently used profitability metric to determine the bottom-line performance of a company.

Net Income Ratio

Net income ratio gives us the exact profitability level of a company. It reflects the percentage of net income to total sales revenues. Using net income ratio, one can determine a company’s effectiveness to meet operating and non-operating expenses from revenues. A higher net income ratio usually implies a company’s ability to generate ample revenues and successfully manage all business functions.

Screening Parameters

Net income ratio is not the only indicator of future winners. So we have added a few more criteria to arrive at a winning strategy.

Zacks Rank Equal to #1: Only Zacks Rank #1 (Strong Buy) stocks are allowed. With the Zacks Rank proving itself to be one of the best rating systems out there, this is a great way to start things off. 

12-Month Trailing Sales and Net Income Growth Higher than X Industry: Stocks that possess higher sales and net income growth in the last 12 months showcase better financial performance.

12-Month Trailing Net Income Ratio Higher than X Industry: High net income ratio indicates a company’s solid profitability.

% Rating Strong Buy greater than 70%: This indicates that 70% of the analysts covering these stocks are optimistic.

These few parameters narrowed down the universe of over 7,883 stocks to only 10.

Here are five of the 10 stocks that qualified the screen:

FMC Corporation (FMC - Free Report) is a diversified chemical company. Its average four-quarter positive earnings surprise is 8.2%.

MasTec, Inc. (MTZ - Free Report) is an infrastructure construction company. Its average four-quarter positive earnings surprise is 38.3%.

Select Energy Services, Inc. (WTTR - Free Report) is an oilfield services company. Its average four-quarter positive earnings surprise is more than 100%.

Star Bulk Carriers Corp. (SBLK - Free Report) is a shipping company. Its average four-quarter positive earnings surprise is 17.5%.

E*TRADE Financial Corporation (ETFC - Free Report) is a financial services company. It has an average four-quarter positive earnings surprise of 7.7%.