Profitability Ratio

Profitability Ratio

The operating efficiency of a firm and its ability to ensure adequate returns to its shareholders depends ultimately on the profits earned by it.  The crucial importance of profit of a firm cannot be over stressed, profitability is a measure of efficiency.  Profitability also indicate public acceptance of the product and shows that the firm can produce competitively more  over profit provide the money for repaying the debt incurred to finance.  The management of the firm naturally eager to measure it’s operating efficiency.  The principal profitability ratios are

1. Net profit ratio
2. Gross profit ratio
3. Earning per share
4. Return on equity ratio
5. Return on capital employed ratio
6. Selling and administration expenses ratio.