Profitability ratios are used to measure the ability of a company to generate earnings (profit) relative to the resources. In this section, we cover the most important profitability ratios you need to know.
What are profitability ratios?
Profitability ratios are a set of measurements indicating the capability of a company to generate profit relative to the resources used. The main goal of profitability ratios is to gauge how effective a company is in using its assets to produce an optimal return.
Profitability ratios are further divided into two categories: return ratios and margin ratios. Return ratios often compare net income or other similar variables (return) with assets, equity, debt, or other indicators. These ratios are mainly useful to estimate the proportion of potential return investors can get.
Meanwhile, margin ratios measure the level of profit at numerous degrees of calculations, some examples are earnings before interest and taxes (EBIT), net income, and net income margin. You can take advantage of these measurements to get a general feel of which kind of resources used to generate sales and how much of them are used.
List of profitability ratios
Below is the complete list of profitability ratios we have covered. Each will provide a detailed overview of the ratio, what it’s used for, and why.
They also explain the formula behind the ratio and provide examples and analysis to help you understand them.
- Capital Gains Yield
- Gross Profit Margin
- Contribution Margin
- Earnings Before Interest and Taxes (EBIT)
- Earnings Per Share
- Earnings Before Interest, Taxes and Amortization (EBITA)
- Profit Margin
- Net Present Value (NPV)
- Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Return On Equity
- Return On Investment (ROI)
- Net Profit Margin
- Return On Assets (ROA)
- Break-Even Point Analysis
- Capitalization Ratio
- Return On Sales
- Return on Net Assets
- Return on Invested Capital (ROIC)
- Operating Margin Ratio
- Margin of Safety (MOS)
- Net Interest Margin (NIM)
- Net Operating Profit After Tax (NOPAT)
- Return on Retained Earnings (RORE)
- Return on Capital Employed (ROCE)
- Marginal Revenue
- Operating Leverage (DOL)
- Gross Margin Ratio
- Goodwill to Assets Ratio
- Net Operating Income (NOI)
- Expense Ratio
- DuPont Analysis
- Cost of Goods Sold (COGS)
- Return on Debt Ratio (ROD)
- Operating Cash Flow Margin
- Operating Income
- Return On Average Equity Ratio
- Return On Revenue (ROR)
- Cash Return On Assets Ratio
- Cash Earnings Per Share (Cash EPS)
- Cash Turnover Ratio (CTR)
- Return on Research Capital (RORC)