Profitability Indicator Ratios
These ratios, much like the operational performance ratios, give users a good understanding of how well the company utilized its resources in generating profit and shareholder value.
The long-term profitability of a company is vital for both the survivability of the company as well as the benefit received by shareholders. It is these ratios that can give insight into the all- important “profit”.
We look at four important profit margins, which display the amount of profit a company generates on its sales at the different stages of an income statement. We’ll also show you how to calculate the effective tax rate of a company.
The last three ratios Return on Assets, Return on Equity and Return on Capital Employed - detail how effective a company is at generating income from its resources.
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