A Business Encyclopedia

Profitability Ratios

Definition: The Profitability Ratios measure the overall performance of the company in terms of the total revenue generated from its operations. In other words, the ratios that measure the capacity of a firm to generate profits out of the expenses and the other cost incurred over a period are called the profitability ratios.

Profit Margin Ratios and the Rate of Return Ratios are the two types of Profitability Ratios.The Profit Margin Ratio shows the relationship between the profit and sales and whereas the Rate of Return Ratios shows the relationship between the profits and the investments.

Profitability Ratios

I Profit Margin Ratios

The most popular ratios are:

  1. Gross Profit Margin Ratio
  2. Operating Profit Margin Ratio
  3. Net Profit Margin Ratio

II Rate of Return Ratios

The most popular ratios are:

  1. Return on Assets Ratio
  2. Return on Equity Ratio
  3. Return on Capital Employed

Generally, the ratios with the higher value are favorable as it indicates that the company is doing well.

Leave a Reply



Related pages

economics diminishing marginal utilityintroduction of sales and inventory systemepfo funddefinition of whistlingfred fiedler contingency theory of leadershipoperating asset turnover ratioexample of denotation and connotation in a sentencedefinition of internsdefine takeoverhrm definesnowballing sampling techniquedefine monetiseforecasting techniques in businessnon probability quota samplingnet operating asset turnover formulamsf and bank rateclassicism theorybrand salience meaningan oligopoly is a market in whichassets in a companyexpectancy theoriesexplain demand forecastingwhat is nsc certificatemeaning of liquidatedefine intrapreneurmonetizing debt definitiondefinition providentcultural factors affecting consumer behaviouroligopoly market meaningfayol theory of managementanother word for takeoveranti takeover defensesmarket differentiated pricingvictor vroom expectancy theoryinternational marketing segmentationspearman rank correlation coefficient examplecollusive and non collusive oligopolycyclical unemployment exampleswhy are liquidity ratios importantcash dividend definition7 c's of effective communicationdefinition ordinalwhat does guerrilla warfare meanoutbound trainingwhat is monopolistic competition marketentrepreneurship venture definitionscalar chainrole of paralanguage in business communicationintranet meaning in hindiexample of imputed costemployees provident funds schemedefinition of transactional analysisslr ratiomeaning of transfer pricinginbound and outbound meaningprinciple of mgttruncated cheque meaningindifference curve approachsegmentation definition in marketingcollective bargaining pptdtl meaningexample of teleologywhat is quata samplinghrm definationhow to plot indifference curveprovision funddominating meaning in hindiexplain rationingmarket theory of wage determinationexport factoring definitionethical egoism definitionwhat is recruitment process in hrmmeaning of ordinal