What Are The Three Main Profitability Ratios?
What Are The Three Main Profitability Ratios?
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Pallavi Kamat
Profitability are the metrics to assess ability of a company to generate profits from its operations.
Three main profitability ratios are:
1. Gross Margin: It tells you how much it costs you to produce goods.
Gross Margin = Gross Profit / Net Sales * 100
2. Return on Assets: How much profits can be generated from available assets.
Return on Assets = Net Income / Assets * 100
3. Operating Margin: It takes into account cost of production that is unrelated to direct production. Eg: Admin expenses
Operating Margin = Operating Profit / Net Sales * 100