PROFITABILITY RATIO
: To measure how much profit that a company can generate from its resources.

Examples of Profitability Ratio :

1) NET PROFIT MARGIN

NET PROFIT MARGIN = NET PROFIT / REVENUE

To evaluate from 1 unit revenue, company can earn how much profit. Higher profit margin than peer companies shows that company very efficient in manage cost and maintain the lowest waste.

2) PRETAX MARGIN

PRETAX MARGIN = EARNING BEFORE TAX / REVENUE

Since tax rebate will affect the true net profit , pretax margin employs earning before tax instead of net profit.

3) OPERATING PROFIT MARGIN

OPERATING PROFIT MARGIN = OPERATING PROFIT / REVENUE

To eradicate the effect of one-time profit earned through selling financial securities, operating profit is used.

4) GROSS PROFIT MARGIN

GROSS PROFIT MARGIN = GROSS PROFIT / REVENUE

To investigate minimum percentage of profit that can be earned because gross profit only involve the crucial expenses that need to produce revenue.

5) RETURN ON ASSET

RETURN ON ASSET = NET PROFIT / TOTAL ASSET

To evaluate efficiency of a company using their assets to generate income.

6) RETURN ON EQUITY

RETURN ON EQUITY = NET PROFIT / TOTAL EQUITY

To evaluate the rate of return that provided to shareholders who invest capital into the company.

Other Info:

"ACTIVITY RATIO"

"LIQUIDITY RATIO"

"SOLVENCY RATIO"

"VALUATION RATIO"

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