How can profitability ratios be determined?

Profitability ratios can be determined on the basis of either sales or investments.

1)   Related to sales:

a)   Profit margin [gross & net]:- It measures the relationship between profit & sales of a firm.

b)   Expenses ratio: – It measures the relationship between expenses like administration, selling & distribution, financial etc & the sales of the firm.

2)   Related to investments:-

a)   Return on investments

i)     Return on assets [compare net profits & assets].

ii) Return on capital employed [compare profits & capital employed]

ii)   Return on shareholder’s equity [measure the returns on owner’s funds]