Return and Profitability Flashcards
What is Profitability?
Shows if a company can sell its product well and if people think it’s valuable
What are Profitability ratios all about?
margins and return in terms of revenues or equity
What is the general rule for Profitability ratios?
the higher the better
Return on Equity (ROE) ratio
net income / average stockholders’ equity
What is the Return on Equity (ROE) ratio?
How much profit a company makes from the money shareholders invest
Return on Assets (ROA) ratio
net income / average total assets
What is the Return on Assets (ROA) ratio?
How well the company turns invested capital into profit
Gross Profit Margin ratio
(sales revenue - COGS) / sales revenue
What is the Gross Profit Margin ratio?
How much money the company keeps after paying to make its products or services
EBITDA Margin ratio
(Sales revenue - COGS - Operating expenses) / Sales revenue
What is the EBITDA Margin ratio?
How much money the company keeps after paying to make its products or services and other operating expenses
Net Profit Margin ratio
Net income / Sales Revenue
What is the Net Profit Margin ratio?
How much profit the company makes from each dollar or euro it earns
