Profitability analysis is an excellent way to determine the ability of a company to ensure effective cost management and provide healthy returns to its investors. Using this analysis one can identify a profitable company, which generally offers better returns than a loss-making one.

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 common and successful 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 pay for its operating and non-operating expenses from its revenues. A higher net income ratio usually implies a company’s ability to generate ample revenues and successfully manage all its 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. You can see the complete list of today’s Zacks #1 Rank stocks here.

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 7,889 stocks to only seven.

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

Sony Corporation (SNE - Free Report) is a designer, developer, manufacturer and seller of electronic equipment. The average four-quarter positive earnings surprise is 47.3%.

SORL Auto Parts, Inc. (SORL - Free Report) is a developer, manufacturer, and distributor of automotive brake systems. It has an average four-quarter positive earnings surprise of more than 100%.

WageWorks, Inc.(WAGE - Free Report) is a management services provider. It has an average four-quarter positive earnings surprise of 7.3%.

Broadcom Limited (AVGO - Free Report) is a global developer of a multiple range of semiconductor devices. The average four-quarter positive earnings surprise is 4.5%.

Malibu Boats, Inc. (MBUU - Free Report) is a designer, manufacturer, distributor, marketer and seller of recreational powerboats, with an average four-quarter positive earnings surprise of 13.8%.