Profitability Ratios
Profitability ratios are financial metrics that assess a company's ability to generate
profit relative to its revenue, assets, equity, and other financial parameters. These ratios
provide valuable insights into a company's overall financial performance and can be
useful for investors, analysts, and management in assessing the effectiveness of a
business's operations. Here are some common profitability ratios:
1. Net Profit Margin:

Formula: Net ProfitRevenue×100%RevenueNet Profit×100%

This ratio measures the percentage of each dollar of revenue that results in net
profit. A higher net profit margin indicates better profitability.
2. Gross Profit Margin:

Formula: Gross ProfitRevenue×100%RevenueGross Profit×100%

This ratio indicates the percentage of revenue that exceeds the cost of goods sold
(COGS). It reflects the efficiency of the production process.
3. Operating Profit Margin:

Formula: Operating ProfitRevenue×100%RevenueOperating Profit×100%

It measures the profitability of a company's core business operations, excluding
interest and taxes.
4. Return on Assets (ROA):

Formula: Net ProfitTotal Assets×100%Total AssetsNet Profit×100%

ROA evaluates how efficiently a company utilizes its assets to generate profit.
5. Return on Equity (ROE):

Formula:
Net ProfitShareholders’ Equity×100%Shareholders’ EquityNet Profit
×100%

ROE assesses the return on shareholders' equity, indicating how well a company
is using equity capital to generate profits.
6. Earnings per Share (EPS):

Formula:
Net ProfitNumber of Outstanding SharesNumber of Outstanding SharesNet Profit

EPS represents the portion of a company's profit allocated to each outstanding
share of common stock.
7. Cash Flow Margin

Formula:(Operating Cash FlowNet Sales)×100Cash Flow Margin=(Net SalesOpe
rating Cash Flow)×100

The cash flow margin is a profitability ratio that measures the percentage of a
company's sales or revenue that turns into cash after covering the cost of goods
sold (COGS) and operating expenses.
8. Dividend Payout

Formula =(Net IncomeDividends Paid)×100

The dividend payout ratio is a financial metric that indicates the proportion of a
company's earnings that is distributed to shareholders in the form of dividends.
9. Dividend Yield

Formula= (Stock Price per ShareAnnual Dividends per Share)×100

Dividend yield is a financial ratio that measures the annual dividend income an
investor can expect to receive relative to the current market price of a stock.
10. Dividends per share

Formula= Number of Outstanding SharesTotal Dividends Paid

Dividends per share (DPS) is a financial metric that represents the total amount of
cash or stock dividends declared by a company and distributed to its shareholders
on
a
per-share
basis.