Profitability Ratios Flashcards
1
Q
Gross Profit Rate
Measures gross profit percentage on
sales to recover operating expenses.
A
Gross profit
/Net Sales
2
Q
Profit Margin on
Sales or Net Profit
Percentage
Measures the percentage of net income
to net sales.
A
Net Income
/Net Sales
3
Q
Net Operating
Income to Sales
Measures the percentage of operating
income to sales.
A
EBIT
/Net Sales
4
Q
Return on
Investment/ Return
on Assets
Indicates whether management is is
using funds wisely.
A
Net Income
/Average Total Assets
5
Q
Net Operating
Income to Total
Capital
A variation of the return on total assets
that excludes non-interest bearing debt
from total assets.
A
EBIT
/Equity + Interest Bearing Note
6
Q
Return on Common
Equity
Measures the return on carrying amount
of equity.
A
Net Income – Preferred
Dividends
/Average Common Equity
7
Q
A
