Profitability ratios are critical financial metrics that evaluate a company's ability to generate earnings relative to its sales, assets, or shareholders' equity. These ratios offer insights into how efficiently a company can convert revenue into profit and create shareholder value.

The two main categories of profitability ratios are margin ratios and return ratios. Margin ratios measure the effectiveness of a company in turning sales into profits at various stages of the business cycle. Return ratios assess how well a company uses its assets to produce profit and how efficiently it generates earnings relative to the equity invested by shareholders.

Generally, higher profitability ratios are more favorable as they indicate a company's success in converting revenue into actual profit. Higher profitability ratios may also signify a more effective management team and a potentially more lucrative investment for shareholders.

These ratios are invaluable for comparing a company's current performance to its past records, assessing trends over time, and benchmarking against peers or industry averages. Investors and analysts use these metrics to identify industry leaders, gauge financial health, and make informed investment decisions.

In this way, profitability ratios measure operational efficiency and profitability, reflecting the overall financial well-being of a company.

Z rozdziału 4:

article

Now Playing

4.8 : Profitability Ratios

Financial Ratio Analysis

39 Wyświetleń

article

4.1 : Meaning of Ratios

Financial Ratio Analysis

62 Wyświetleń

article

4.2 : Types of Ratios

Financial Ratio Analysis

53 Wyświetleń

article

4.3 : Importance of Ratio Analysis

Financial Ratio Analysis

57 Wyświetleń

article

4.4 : Liquidity Ratios

Financial Ratio Analysis

44 Wyświetleń

article

4.5 : Liquidity Ratios: Current Ratio

Financial Ratio Analysis

37 Wyświetleń

article

4.6 : Liquidity Ratios: Quick Ratio

Financial Ratio Analysis

30 Wyświetleń

article

4.7 : Liquidity Ratios: Liquid Ratio

Financial Ratio Analysis

40 Wyświetleń

article

4.9 : Profitability Ratios: Gross Profit Ratio

Financial Ratio Analysis

31 Wyświetleń

article

4.10 : Profitability Ratios: Net Profit Ratio

Financial Ratio Analysis

29 Wyświetleń

article

4.11 : Profitability Ratios: Return on Equity

Financial Ratio Analysis

26 Wyświetleń

article

4.12 : Profitability Ratios: Return on Asset

Financial Ratio Analysis

23 Wyświetleń

article

4.13 : Profitability Ratios: Return on Capital Employed

Financial Ratio Analysis

34 Wyświetleń

article

4.14 : Profitability Ratios: Earnings per Share

Financial Ratio Analysis

14 Wyświetleń

article

4.15 : Profitability Ratios: Price Earning Ratio

Financial Ratio Analysis

13 Wyświetleń

See More

JoVE Logo

Prywatność

Warunki Korzystania

Zasady

Badania

Edukacja

O JoVE

Copyright © 2025 MyJoVE Corporation. Wszelkie prawa zastrzeżone