Profitability Ratios

Profitability Ratios measures of rates of return on assets or equity then showing the combined effects of liquidity, asset management, and debt management on operating results.

Profitability Ratios measures of rates of return on assets or equity then showing the combined effects of liquidity, asset management, and debt management on operating results. Its also are indicators of a firm's overall financial health. The return on assets (earnings before interest and taxes divided by total assets) is the most popular of these measures. Firms with higher return on assets should be better able to raise money in security markets because they offer prospects for better returns on the firm's investments.

Profit Margin on Sales Ratio

=    Net Income Available to Common Stockholders  

                                  Sales

Basic Earning Power (BEP) Ratio

=    Earnings Before Interest and Taxes (EBIT)  

             Total Assets or Average Assets

Average Assets =  Beginning Assets + Ending Assets  

                                                 2

Return on Total Assets (ROA) Ratio

=    Net Income Available to Common Stockholders  

                            Total Assets

Return on Common Equity (ROE) Ratio

=    Net income available to common stockholders  

                             Common Equity

Profit attributable to stockholders is profit after the deduction of interest, tax, minority interests and preference stock dividends. Equity stockholders' funds are calculated after the deduction of minority interests and preference stock capital.