{"id":4132,"date":"2020-10-26T16:10:09","date_gmt":"2020-10-26T16:10:09","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-financialaccounting\/?post_type=chapter&p=4132"},"modified":"2020-11-15T20:49:41","modified_gmt":"2020-11-15T20:49:41","slug":"introduction-to-measures-of-profitability","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/chapter\/introduction-to-measures-of-profitability\/","title":{"raw":"Introduction to Measures of Profitability","rendered":"Introduction to Measures of Profitability"},"content":{"raw":"

What you will learn to do: Calculate ratios that analyze a company\u2019s earnings performance<\/h2>\r\n\"A\r\n\r\nProfitability ratios are a class of financial metrics 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.\r\n\r\nProfitability ratios are one of the most popular metrics used in financial analysis, and they generally fall into two categories\u2014return ratios and margin ratios.\r\n\r\nReturn ratios offer several different ways to examine how well a company generates a return for its shareholders and include return on assets (ROA) and return on equity (ROE).\r\n\r\nMargin ratios give insight, from several different angles, on a company's ability to turn sales into a profit. For instance, gross margin measures how much a company makes after accounting for COGS. The net profit margin is a company's ability to generate earnings after all expenses and taxes.\r\n\r\nOther ratios that measure profitability (the ability to make a profit) that will be covered in this section include:\r\n