profitability ratios Flashcards
what is the gross profit rate formula and what does it show?
MARGIN
Gross Profit Rate = Gross Profit / Sales X 100
Evaluates how much gross profit is generated from sales. Gross profit is equal to net sales (sales minus sales returns, discounts, and allowances) minus cost of sales.
what is the return on sales formula and what does it show?
RETURN ON INVESTMENT
Return on Sales = Net Income / Net Sales X 100
Also known as “net profit margin” or “net profit rate”, it measures the percentage of income derived from dollar sales. Generally, the higher the ROS the better.
what is the return on assets formula and what does it show?
RETURN ON INVESTMENT
Return on Assets = Net Income / Assets X 100
Return on assets measures how effectively the company produces income from its assets.
what is the return on Equity formula and what does it show?
RETURN ON INVESTMENT
Return on Equity = Net Income / shareholder investment X 100
Return on equity measures how much a company makes for each dollar that investors put into it.
what is the gross profit margin formula and what does it show?
MARGIN
gross profit margin = gross profit / sales X 100
In other words, it measures how efficiently a company uses its materials and labor to produce and sell products profitably.
what is the net profit (operating) margin formula and what does it show?
MARGIN
net profit (operating) / sales X 100 Net profit margin is the percentage of revenue left after all expenses have been deducted from sales. The measurement reveals the amount of profit that a business can extract from its total sales.
what are the two categories for profitability ratios?
MARGIN
RETURN ON INVESTMENT
what is ROCE formula and what does it show?
ROCE = PBIT /
