Profitability Ratios
From Income Statement Only
- Gross Profit Margin Percentage : Gross Margin = Gross Profit / Revenue --> Shows the basic profitability of the product or service itself before expenses or overhead are added in. It tells how much of the dollar one gets to use in the business and how much one pays out in direct costs (COGS or COS), just to get the product produced or service delivered.
- Operating Profit Margin Percentage : Operating Margin = Operating Profit (EBIT) / Revenue --> It indicates how well a company is running its entire business from an operational standpoint.
- Net Profit Margin Percentage (Return on Sales or ROS) : Net Margin = Net Profit / Revenue --> It tells how much out of one dollar the company keeps after everything else has been paid out.
From both Income Statement and Balance Sheet
- Return on Assets (ROA) : ROA = Net Profit / Total Assets --> ROA shows how effective the company is using those assets to generate profit. It is a measure that can be used in any given industry to compare the performance of companies of different size.
- Return on Equity (ROE) : ROE = Net Profit / Shareholders' Equity --> ROE tells what percentage of profit the company make for every dollar of equity invested in the company. It is also a indication whether the company is even capable of generating a return that is worth whatever risk the investment may entail i.e. from the investor's perspective it can show what risk/return of his equity from the company.
Leverage Ratios
Liquidity Ratios
Efficiency Ratios
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