It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like Diageo (LON:DGE), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

See our latest analysis for Diageo

Diageo's Improving Profits

Even when EPS earnings per share (EPS) growth is unexceptional, company value can be created if this rate is sustained each year. So EPS growth can certainly encourage an investor to take note of a stock. Diageo's EPS shot up from UK£1.14 to UK£1.43; a result that's bound to keep shareholders happy. That's a impressive gain of 25%.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. EBIT margins for Diageo remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 21% to UK£15b. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Diageo's future profits.

Are Diageo Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

The real kicker here is that Diageo insiders spent a staggering UK£2.0m on acquiring shares in just one year, without single share being sold in the meantime. Buying like that is a fantastic look for the company and should rouse the market in anticipation for the future. It is also worth noting that it was Non-Executive Chairman Francisco Javier Larraz who made the biggest single purchase, worth UK£916k, paying UK£36.65 per share.