A ratio is a division between two figures that produces clear, comparable information. Profitability ratios measure the ability to generate profit.

The main ones

  • Net margin: net profit ÷ revenue. How much profit for every 100 sold?
  • Return on assets: operating profit ÷ total assets. Is the company making good use of its resources?
  • Return on equity: net profit ÷ shareholders’ equity. What the owners actually earn.

The value of a ratio lies in comparison: over time (are we improving?) and against competitors (are we doing better or worse?). A single figure says nothing; compared, it speaks.

Key takeaway: profitability ratios show whether the company turns its activity and resources into profit efficiently. Always compare.

PreviousNext