Profitability Ratio

Question 1

Define Profitability

Answer 1

Profitability indicates the ability to earn income within the current financial structure capacity

Question 2

Define Gross Profit Ratio and Strategies

Answer 2

The ability to earn income within the present financial structure of an enterprise
Strategies: 
Increase selling price
Reduce COGS 
Find a cheaper supplier for goods sold

Question 3

Define Net Profit and Strategies

Answer 3

Indicates the ability of the business to generate a return on the owner’s investment
Strategies:
Increase Sales Revenue
Reduce Expense

Question 4

Define Rate of Return on Owners Equity and Strategies

Answer 4

Indicates the return to the owner on the amount invested in the business
Strategies:
Decrease owners investment if it is considered to be overcapitalized
Increase net profit
The owner could contribute more if undercapitalized

Question 5

Rate of Return on Total Assets and Strategies

Answer 5

Indicates the ability of the enterprise to generate profits using its assets
Strategies:
Increase net profit
Decrease average total assets