Examples Of Profitability Ratios

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2.3 Profitability Ratios
By differentiate the income statement accounts and categories to show a company’s ability to generate profits from its operations. Profitability ratios focused on a company’s return on investment in inventory and other assets fundamentally, these ratios show how well companies can achieve profits from their operations. Investors and creditors can use profitability ratios to judge a company’s return on investment in inventory and other assets. These ratios basically show how well companies can achieve profits from their operations. There were five elements under the profitability ratios.

a) Gross Profits Margin
It is a profitability ratio that compares the gross margin of a business to the net sales. This ratio …show more content…

The amounts disclose the amount of gain that a business can extract from its total sales. The net sales part of the equation is gross sales minus all sales deductions, such as sales allowances. The net profit margin is aim to be a measure of the overall success of a business. A high net profit margin points that a business is determining its products correctly and is exercising good cost control. It is practicable for comparing the results of businesses within the same industry, since they are all subject to the same business environment and customer base, and may have approximately the same cost …show more content…

Above and beyond, the return on equity ratio proves how much profit each ringgit of common stockholders' equity creates. ROE is also a sign of how much helpful management is at using equity financing to fund operations and grow the company.

For the analysis, return on equity appraises how efficiently a firm can use the money from shareholders to generate profits and grow the company. Unlike other return on investment ratios, ROE is a profitability ratio from the investor's point of view which is not the company. More to the point, this ratio reckon how much money is produced based on the investors' investment in the company, not the company's investment in assets or something else. Higher ratios are almost always better than lower ratios, but have to be compared to other companies' ratios in the

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