profitability ratios

Question 1

net profit margin ratio formula and definition

Answer 1

net income / revenue

measure overall performance of firm relative to revenues, etc

Question 2

gross profit margin ratio formula

Answer 2

gross profit / revenue

Question 3

operating profit margin ratio formula

Answer 3

operating income / revenue or EBIT / revenue

Question 4

pretax margin formula

Answer 4

EBT / Revenue

Question 5

ROA formula (simple, no interest)

Answer 5

net income / ave. total assets

Question 6

ROA formula (complex with interest)

Answer 6

net income + interest expense (1- tax rate) / average total assets

Question 7

operating reutn on assets formula

Answer 7

operating income / ave total assets or EBIT / ave total assets

Question 8

ROTC (return on total capital) formula

Answer 8

EBIT / ave. total capital

Question 9

ROE formula

Answer 9

net income / ave. total equity

Question 10

return on common equity formula

Answer 10

NI - pref. dividends / ave. common equity =

NI to common invest. / ave common equity