What are profit ratios?

Answer 1

Profitability Ratios measure the company's use of its assets and control of its expenses to generate an acceptable rate of return. The purpose of these ratios is to help us identify how profitable an organization is. As an investor I would like to invest only in company's that are profitable and in best case profitable than all their industry peers.

Some of the ratios that can help us identify a company's profitability are:

1. Gross Margin or Gross Profit Margin

2. Operating Margin or Operating Profit Margin or Return on Sales (ROS)

3. Profit Margin or Net Profit Margin

4. Return on Equity (ROE)

5. Return on Investment (ROI)

6. Return on Assets (ROA)

7. Return on Assets DuPont (ROA DuPont)

8. Return on Equity DuPont (ROE DuPont)

9. Return on Net Assets (RONA)

10. Return on Capital (ROC)

11. Risk Adjusted Return on Capital (RAROC)

12. Return on Capital Employed (ROCE)

13. Cash Flow Return on Investment (CFROI)

14. Efficiency Ratio

15. Net Gearing or Gearing Ratio

16. Basic Earnings Power Ratio