Profitability Ratios
Net Profit Margin (Return on Sales)
A measure of net income dollars generated by each dollar of sales.
• Formula
Net Income *Net Sales
• Return on Assets
Measures the company's ability to utilize its assets to create profits.
• Formula
Net Income *(Beginning + Ending Total Assets) / 2
• Operating Income Margin
A measure of the operating income generated by each dollar of sales.
• Formula
Operating Income/Net Sales
• Return on Investment
Measures the income earned on the invested capital.
• Formula
Net Income *
Long-term Liabilities + Equity
• Return on Equity
Measures the income earned on the shareholder's investment in the business.
• Formula
Net Income *Equity
• Gross Profit Margin
Indicates the relationship between net sales revenue and the cost of goods sold. This ratio should be compared with industry data as it may
indicate insufficient volume and excessive purchasing or labor costs.
• Formula
Gross Profit/Net Sales
Net Profit Margin (Return on Sales)
A measure of net income dollars generated by each dollar of sales.
• Formula
Net Income *Net Sales
• Return on Assets
Measures the company's ability to utilize its assets to create profits.
• Formula
Net Income *(Beginning + Ending Total Assets) / 2
• Operating Income Margin
A measure of the operating income generated by each dollar of sales.
• Formula
Operating Income/Net Sales
• Return on Investment
Measures the income earned on the invested capital.
• Formula
Net Income *
Long-term Liabilities + Equity
• Return on Equity
Measures the income earned on the shareholder's investment in the business.
• Formula
Net Income *Equity
• Gross Profit Margin
Indicates the relationship between net sales revenue and the cost of goods sold. This ratio should be compared with industry data as it may
indicate insufficient volume and excessive purchasing or labor costs.
• Formula
Gross Profit/Net Sales