Profitability Ratios

Measures the firms’ profits with the given

level of sales.

Profitability
Ratio
Return On
Gross profit Equity
margin

Net Profit
Return On Assets
Margin
 Gross Profit Margin
Gross profit margin =sale –CGS/Net sale

Years 2014 2015 2016

GPM 65% 62% 68%

This ratio indicate the firm operation .How efficiently firm

handle its operations and it also indicate the Pricing of
product.
In 2016 company earn more profit as compared to other
years .In 2016 company is more efficient in selling of its
product.
 Net Profit Margin `
Net Profit Margin = Profit after taxes /Net sales
Years 2014 2015 2016
NPM 22% 27% 27%

The net profit margin is a measure of the firms profitability of

sales after taking account of all expenses and income taxes.
 Higher the ratio better is for the organization. It means that
firm in 2016 and in 2015 earn more profit as compared to 2014.
 Return on investment/ Return on asset

 Return on asset = Profit after taxes*100

Total Assets
Years 2014 2015 2016
ROA 16% 10% 15%

• The net profit margin ignores the utilization of asset and the
total asset turnover ratio ignores the profitability on sales.
The return on asset ratio resolves these shortcomings. And
this ratio also show how much assets company utilized to
generate a profit.
• In 2014 company performance is efficient because it utilized
less assets as compared to others years for making profit.
 Return on equity

Return on equity = Profit after taxes*100

Shareholder’s Equity
Years 2014 2015 2016

ROE 72% 52% 35%

 This ratio tell us the earning power on shareholder`s book
value investment .High ROE mean firm utilized lesser
share holder equity and generate high profit .
 In 2014 company performance is efficient because it
generate more profit by using less shareholder equity.