Profitability Ratios
What are Profitability Ratios?
Profitability ratios are financial metrics used to assess a company's ability to generate profits. These ratios measure the efficiency and effectiveness of a company's operations and its ability to generate income. Profitability ratios are used to evaluate a company's past performance and to forecast its future earnings potential. Some common profitability ratios include the net profit margin, return on assets (ROA), and return on equity (ROE).
The net profit margin is a measure of a company's profitability that takes into account all of its expenses. It is calculated by dividing net income by total revenue. A higher net profit margin indicates that a company is able to generate more income from its operations.
Return on assets (ROA) measures how efficiently a company is using its assets to generate profits. It is calculated by dividing net income by total assets. A high ROA indicates that a company is able to generate a lot of income from its assets.
Return on equity (ROE) measures how effectively a company is using its shareholder equity to generate profits. It is calculated by dividing net income by shareholder equity. A high ROE indicates that a company is able to generate a lot of income from its shareholder equity.
See Also
- IT Strategy (Information Technology Strategy)
- IT Governance
- Enterprise Architecture
- Chief Information Officer (CIO)
- IT Sourcing (Information Technology Sourcing)
- IT Operations (Information Technology Operations)
- E-Strategy