Profitability ratios include margin ratios and return ratios. Higher ratios are often more favorable than lower ratios, indicating success at converting revenue to profit. These ratios are used to assess a company's current performance compared to its past performance, the performance of other companie...
The most common profitability ratios include the net profit margin, gross profit margin, operating margin, return on assets, and return on equity ratio. Net Profit Margin The net profit margin, as a measure of profitability, calculates profit as a percentage of total revenue. The ratio divides ...
Profitability ratios are financial ratios which measure a company’s ability to earn income. Important profitability ratios include gross profit margin, net profit margin, operating profit margin, return on assets, return on equity, return on capital emp
expenses, or assets. It is typically expressed as a percentage. Examples of profitability ratios include gross profit margins, return on assets, return on equity, and EBITDA. The general rule is that a company does well compared to its competitors...
The purpose of calculating the profitability ratios is to measure the operating efficiency of a business and the returns that the company generates. The different business stakeholders are interested in the profitability ratios for various purposes. The business stakeholders include owners, management, cre...
Any ratio that measures a company's ability to generate cash flow relative to some metric, often the amount invested in the company. Profitability ratios are useful in fundamental analysis which investigates the financial health of companies. An example of a profitability ratio is the return on in...
Return ratios represent the company’s ability to generate returns to its shareholders. Examples include return on assets, return on equity, cash return on assets, return on debt, return on retained earnings, return on revenue, risk-adjusted return, return on invested capital, and return on capi...
Profitability ratios Print Email The profitability index (PI) refers to the ratio of discounted benefits over the discounted costs. It is an evaluation of the profitability of an investment and can be compared with the profitability of other similar investments which are under consideration. the ...
How to Calculate the Profitability Ratio Several key profitability ratios are commonly used to assess a company’s performance. The most widely used include the gross profit margin, operating profit margin and net profit margin. To calculate the gross profit margin, subtract the cost of goods sold...
This is one of the most widely used ratios by investors. However, since this ratio does not include debt, looking at just this ratio may be misleading. A company with very high debt will have a small equity base and even a small amount of net income will produce high ROE. Therefore, ...