Profitability ratio

A profitability ratio is a financial metric used to assess a company's ability to generate earnings relative to its revenue, operating costs, balance sheet assets, or shareholders' equity over a specific period. These ratios indicate how efficiently a company is using its assets and managing its operations to produce profit.

Common examples include:

• Gross Profit Margin: (Gross Profit / Revenue) x 100%
• Net Profit Margin: (Net Income / Revenue) x 100%
• Return on Assets (ROA): (Net Income / Average Total Assets) x 100%
• Return on Equity (ROE): (Net Income / Average Shareholders' Equity) x 100%