What are Profitability Ratios?

Profitability Ratios Definition

Profitability ratios are used to measure the ability of a business and its management to generate profit.

Popular Profitability Ratios List

A selection of popular profitability ratios from the mdct.ru Ratios Guide.

Profitability Ratios Analysis

Profitability ratios should not be viewed in isolation but looked at over a period of time using trend analysis and in comparison to other businesses in your industry.

In addition, in order to give a full picture of what is happening, they should be viewed relative to other ratios calculated for the business such as liquidity ratios, efficiency ratios, leverage ratios, activity ratios, and investor ratios.

Profitability ratios normally measure profit and therefore the higher the value the more profit is being generated and the better the business is performing. There are exceptions, in the examples below the profitability ratio Overheads to Sales, measures overheads as a percentage of sales and therefore a lower value is preferable.

Profitability Ratios Formula

There are numerous examples of profitability ratios, however, it is important to select the key ratios which relate to your business. The industry sector, size, and complexity of the business will determine the most appropriate ratios to use and many may not be relevant or worth calculating, particularly for a small business.

List of Useful Profitability Ratios Formula
Profitability Ratio Profitability Ratio Formula
Return on Sales Percentage Profit before Interest and Tax / Sales x 100%
Gross Margin Percentage Gross Profit / Sales x 100%
Overhead Ratio Overheads / Sales x 100%
Net Margin Percentage Net Profit / Sales x 100%

What are Profitability Ratios? November 6th, 2016Team

You May Also Like


Related pages


calculate quick ratio formulajournal entries for depreciation of fixed assetppe fixed assetsdefine creditor in accountingformula roafinancial accounting exercises and solutionsclosing entries accountingpercentage of completion accounting entriesstraight line method of amortization calculatormonth end adjusting entriesjournal entry for issuing common stockjournal entry accrued interestprepaid expenses accounting definitioncalculate depreciation excelredemption of bonds payabletrial balance vs general ledgeraccounting quizaccounting entries for capital leasehow to calculate safety stock in excelcalculation of cost of goods manufacturedinventory shrinkage journal entrycogs exampledoubling time formula calculatorfob factory definitionvertical analysis for income statementthe double declining balance method of depreciation is used forfv pv formulapresent value perpetuity calculatorsales ledger exampledebit credit journal entry examplesdepreciation slmproforma of bank reconciliation statementthe accounting equation explainedaccounts payable general ledgertabel annuityfixed asset turnover ratio formulaobsolete stock definitionhow to calculate variable expensesample cash voucherdistinguish between trial balance and balance sheetexpanded basic accounting equationexcel effective interest rateasset register template excel freeperpetual and periodic inventory systemshow to compute debt to equity ratioexcel ledger templatefuture value of annuity examplerental ledger templatenon interest bearing note payablebank reconciliation statement questions and answersjournal entry for bad debts recoveredfifo equationhow to calculate cumulative cash flowquick ration formulapresent value of annuity formula in excelgeneral ledger explainedjob timesheetsaccounting for construction contracts journal entriesexplanation of accounting equationexcel present value annuitytransferable letter of credit flow chartunderstated accountingjournal entries for bad debtsbasic double entry bookkeepingdefine contribution margin ratiojob costing sheetpetty cash accountingfinance lease ifrs examplescrap disposal formateft electronic funds transfer definitionwhat is a growing perpetuitysample trial balance worksheetverifiability principle accountingbookkeeping to trial balance