abhishreshthaa
Abhijeet S
PROFITABILITY RATIOS
Profitability is an indication of the efficiency with which the operations of the business are carried on. Profitability ratios are of two types: those showing profitability in relation to sales and those showing profitability in relation to investments.
Together, these ratios indicate the firm’s efficiency in operations. Poor operational performance may indicate poor sales and hence poor profits. A lower profitability may arise due to the lack of control over the expenses.
Profit is the difference between total revenue and total expenses over a period of time. Profit is the ultimate outcome of a company, and it will have no future if it fails to make sufficient profits.
Therefore, the financial manager should continuously evaluate the efficiency of his company in terms of its profitability. Profitability ratios measure operating efficiency of the firm. Besides, management of the company, creditors and owners are in the profitability of the company.
There are different types of profitability ratios. Some of them are as under:
a) Overall Profitability Ratio
b) Return on Total Assets
c) Earning Per Share
d) Price Earning Ratio
e) Net Profit Ratio
Profitability is an indication of the efficiency with which the operations of the business are carried on. Profitability ratios are of two types: those showing profitability in relation to sales and those showing profitability in relation to investments.
Together, these ratios indicate the firm’s efficiency in operations. Poor operational performance may indicate poor sales and hence poor profits. A lower profitability may arise due to the lack of control over the expenses.
Profit is the difference between total revenue and total expenses over a period of time. Profit is the ultimate outcome of a company, and it will have no future if it fails to make sufficient profits.
Therefore, the financial manager should continuously evaluate the efficiency of his company in terms of its profitability. Profitability ratios measure operating efficiency of the firm. Besides, management of the company, creditors and owners are in the profitability of the company.
There are different types of profitability ratios. Some of them are as under:
a) Overall Profitability Ratio
b) Return on Total Assets
c) Earning Per Share
d) Price Earning Ratio
e) Net Profit Ratio