Profitability Ratio class is for the HSC candidates or for the students of classes 11 and 12. This class is a part of HSC (11-12) [ এইচএসসি (১১-১২) ], Finance and Banking 1st paper. You can find it in the Finance 1st Paper, chapter 4, the topic name is “Profitability Ratio”. This class will help you in your upcoming HSC examination.
Profitability Ratio
Profitability ratios are a class of financial metrics that are used to assess a business’s ability to generate earnings relative to its revenue, operating costs, balance sheet assets, or shareholders’ equity over time, using data from a specific point in time. They are among the most popular metrics used in financial analysis.
Profitability ratios can be a window into the financial performance and health of a business. Ratios are best used as comparison tools rather than as metrics in isolation. Profitability- ratios can be used along with efficiency ratios, which consider how well a company uses its assets internally to generate income (as opposed to after-cost profits).
KEY TAKEAWAYS
- Profitability ratios assess a company’s ability to earn profits from its sales or operations, balance sheet assets, or shareholders’ equity.
- They indicate how efficiently a company generates profit and value for shareholders.
- Profitability ratios include margin ratios and return ratios.
- Higher ratios are often more favorable than lower ratios, indicating success at converting revenue to profit.
- These ratios are used to assess a company’s current performance compared to its past performance, the performance of other companies in its industry, or the industry average.
What Can Profitability Ratios Tell You?
Profitability -ratios can shed light on how well a company’s management is operating a business. Investors can use them, along with other research, to determine whether or not a company might be a good investment.
Broadly speaking, higher profitability -ratios can point to strengths and advantages that a company has, such as the ability to charge more (or less) for products and to maintain lower costs.
A company’s profitability -ratios are most useful when compared to those of similar companies, the company’s own performance history, or average ratios for the company’s industry. Normally, a higher value relative to previous value indicates that the company is doing well.
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