Profitability Ratios

Profitability Ratios

Profitability ratios indicates how much profit is the company making from its operation. Understanding the profitability ratios of the company becomes very important because these ratios indicates about the quality of earnings, pricing power and sustainability of earnings.

Below are the important profitability ratios we will learn as part of this resources.

Click on each ratios to learn their meaning, formula along with examples, interpretation and real life application

  • Gross profit margin

    High gross profit margins typically indicates the company’s ability in controlling cost of goods sold or..

  • Operating profit margin

    Low operating profit margins typically indicates the company’s operating costs are significant when compared…

  • Pretax profit margin

    High pretax profit margin indicates the company is with a high degree of operational profitability. But caution ..

  • Net profit margin

    High Net profit margin indicates overall ability of company to generate profits from sales. Net profit margin…

  • Return on assets

    High return on assets indicates company earns more profits utilizing the assets effeciently. While ROA is consi..

  • Return on capital

    High return on capital indicates efficient utilization of company’s capital to generate sufficient profits. Low return on capital indicates..

  • Return on Equity

    High return on equity indicates owners’ equity is used in best manner to generate higher net profits to the shareholders.Low return ..


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