Profability Ratios

CENTRO ESTATAL TURISTICO Y SOCIAL

Escuela de Administración y Negocios

Financial Analisis

Resume:

Profitability Ratios

Presents:

Edgar Iván Velarde Muñoz

Enrollment 7183

Ensenada, B. C., october 12 2011

Profitability Ratios

The profitability ratios are the ratios that evaluate your company’s ability to generate profits. This is done by checking the ability to generate sales and to control its expenses. Profit as reported on the income statement is a product of the art of finance, and any ratio based on those numbers will itself reflect all those estimates and assumptions.

The first profitability ratio is the gross profit margin percentage. This ratio is obtained by dividing the gross profit between the revenue. Its goal is to show the basic profitability of the product or service itself, before expenses or overhead are added in. in other words it tells you the profit the company makes of each dollar.

The operating profit margin percentage is the second of the profitability ratios. This profitability ratio helps you identify how well a company is doing its entire business from an operational standpoint, this is obtained by dividing the operating profit divided by the revenue, and it’s expressed as a percentage. The operating margin is a good indicator of how well managers as a group are doing their jobs.

The net profit margin percentage tells a company how much out of every sales dollar it gets to keep after everything else has been paid for. The way this profitability ratio is earned is by dividing the net profit by the revenue.

The return on assets tells you what percentage of each dollar invested in the business was returned to you as profit. The return on assets simply shows how effectively the company is using the assets to generate profits. The formula to reach this ratio is by dividing the net profits by the total assets.

The next ratio is the return on equity, which tells us what percentage of each dollar becomes profit of the...