key term - Profitability Ratios

Definition

Profitability ratios are financial metrics used to assess a business's ability to generate earnings relative to its revenue, assets, equity, or other financial metrics. They give insights into the efficiency and performance of a company in generating profit.

Related terms

Gross Profit Margin:

It measures the percentage of revenue that exceeds the cost of goods sold by a company.

Return on Assets (ROA):

This ratio indicates how efficiently a company can turn its assets into net income.

Return on Equity (ROE):

It shows the amount of net income returned as a percentage of shareholders' equity, revealing how effectively ownership investments generate earnings