Profitability Ratios

Part 1 of finance ratios

Gross Profit Margin (GPM)

Gross Profit / Revenue

Operating Profit Margin (OPM)

Operating Profit / Revenue

Net Profit Margin (NPM)

Net Profit / Revenue

Return on Assets (ROA)

Net Profit / Total Assets

Return on Equity (ROE)

Net Profit / Total Equity

Capital Employed

Total Assets - Current Liabilities

Return on Capital Employed (ROCE)

Net Profit / Capital Employed OR Operating Profit / Capital Employed

Margin Ratios Definition:

Measures how well a business converts revenue into profit

Margin Ratios Examples:

Gross Profit Margin (GPM); Operating Profit Margin (OPM); Net Profit Margin (NPM)

Return Ratios Definition:

How much net profit a business is able to generate relative to assets, equity, or capital employed

Return Ratios Examples:

Return on Assets (ROA); Return on Equity (ROE); Return on Capital Employed (ROCE)