Profitibility Ratio
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Profitability Ratio
Profitability ratios are financial metrics used by analysts and investors to
measure and evaluate the ability of a company to generate income (profit)
relative to revenue, balance sheet assets, operating costs, and shareholders’
equity during a specific period of time. They show how well a company
utilizes its assets to produce profit and value to shareholders.
A. Return Ratios
Return ratios represent the company’s ability to generate returns for its
shareholders. It typically compares a return metric versus certain
balance sheet items.
Return on Equity
Return on Assets
Return on Capital Employed
B. Margin Ratios
Margin ratios represent the company’s ability to convert sales into
profits at various degrees of measurement. Margin ratios typically look
at certain returns when compared to the top line (revenue). Typically, it
compares income statement items.
Gross Margin Ratio
Operating Profit Margin
Net Profit Margin
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