What are 'Profitability Ratios'
Profitability ratios are a class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.
BREAKING DOWN 'Profitability Ratios'
Some examples of profitability ratios are profit margin, return on assets and return on equity. It is important to note that a little bit of background knowledge is necessary in order to make relevant comparisons when analyzing these ratios.
For instance, some industries experience seasonality in their operations. The retail industry, for example, typically experiences higher revenues and earnings for the Christmas season. Therefore, it would not be too useful to compare a retailer's fourthquarter profit margin with its firstquarter profit margin. On the other hand, comparing a retailer's fourthquarter profit margin with the profit margin from the same period a year before would be far more informative.
Profitability ratios are the most popular metrics used in financial analysis. Read the short guide on Profitability Indicator Ratios: Introduction.

Ratio Analysis
A ratio analysis is a quantitative analysis of information contained ... 
Current Ratio
The current ratio is a liquidity ratio measuring a company's ... 
Combined Ratio
A measure of profitability used by an insurance company to indicate ... 
Accounting Ratio
A way of expressing the relationship between one accounting result ... 
Profit Margin
Profit margin is part of a category of profitability ratios calculated ... 
Operating Ratio
A ratio that shows the efficiency of a company's management by ...

Investing Basics
Analyze Investments Quickly With Ratios
Make informed decisions about your investments with these easy equations. 
Investing
Ratio Analysis
Ratio analysis is the use of quantitative analysis of financial information in a company’s financial statements. The analysis is done by comparing line items in a company’s financial ... 
Fundamental Analysis
The Value of Profitability Ratios
How is a company being run? Is it generating profits? The answer to these questions lies in analyzing the profitability ratios of a company. 
Fundamental Analysis
Analyze Investments Quickly With Ratios
There are four categories of financial ratios: profitability, liquidity, solvency and valuation. 
Technical Indicators
Key Financial Ratios to Analyze Tech Companies
Understand the technology industry and the companies that operate in it. Learn about the key financial ratios used to analyze tech companies. 
Fundamental Analysis
Efficiency Ratio
There are many types of efficiency ratios, but all measure how well a company utilizes its resources to make a profit. Business managers use these ratios to determine how well they are operating ... 
Markets
A Look At Corporate Profit Margins
Take a deeper look at a company's profitability with the help of profit margin ratios. 
Trading Strategies
Financial Ratios to Spot Companies Headed for Bankruptcy
Obtain information about specific financial ratios investors should monitor to get early warnings about companies potentially headed for bankruptcy. 
Active Trading Fundamentals
Analyzing AT&T's Price & Profitability Ratios in 2016 (T)
Conduct fundamental analysis on AT&T by examining its price and profitability ratios. 
Fundamental Analysis
5 MustHave Metrics For Value Investors
Focusing on certain fundamental metrics is the best way for value investors to cash in gains. Here are the most important metrics to know.

Which financial metrics are best for analyzing companies in the chemicals sector?
Learn about some of the key financial metrics that investors and market analysts commonly use to evaluate companies in the ... Read Answer >> 
What is the difference between efficiency ratios and profitability ratios?
Learn about efficiency and profitability ratios, what these ratios measure and the main difference between efficiency and ... Read Answer >> 
How do stock dividends affect the retained earnings account?
Understand the difference between financial ratio analysis and accounting ratio analysis. Learn why ratio analysis is important ... Read Answer >> 
What other investment metrics are best used in conjunction with net margin?
Learn about a number of other equity valuation measures that can best be used in conjunction with looking at a company's ... Read Answer >> 
How do I use ratios to perform a financial analysis?
Learn which ratios are used in fundamental analysis. Find out how analysts measure company performance and financial health ... Read Answer >> 
What advantages does EBTIDAmargin have over other profitability ratios?
Understand what advantages the EBITDA margin has over other profitability ratios. Learn the difference between the two broad ... Read Answer >>