Profitability Ratios Flashcards
What is Gross Margin?
The profit after product costs to cover other operating costs.
Do you want Gross Margin to be higher or lower?
Higher
The higher it is, the more the company retains on each dollar of sales to service its other costs and debt obligations.
How can a company increase its gross margin?
Cut labour costs
Find suppliers who offer lowers costs on materials
Increase price to boost revenue
What is profit margin?
Net profit earned on each $1 of sales.
Do you want the profit margin to be higher or lower?
Higher
The higher it is, the more efficient the company is.
What is Return on Equity?
The rate of return on resources provided by investors
Do you want return on equity to be higher or lower?
Higher
What is Return on Assets?
How much profit a company is able to generate from its assets
Do you want return on Assets to be higher or lower?
Higher
The higher the number, the more efficient the company is at managing its balance sheet to generate profits.
