Profitability Ratios

Profitability ratios associate the amount of income earned with the resources used to generate it.

Return on Assets relates net income to the investment in all the financial resources at the command of management. It is most useful as a measure of effective resource utilisation – without regard to how those resources were obtained or financed. Analysts and investors often compare the ROA of one company to the ROA of its peer group of key competitors to assess the effectiveness of top management.

ROA = Net Income / Total Assets

Return on Equity relates net income to the amount invested by shareholders. It is a measure of how efficiently the share-holders' stake in the business has been used. ROE is calculated as follows:

ROE = Net Income / Shareholders Equity.

Return on Investment is often used in business discussions that involve profitability. Unfortunately there is no standard definition of ROI, since investment may be construed......

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Title: Financial Ratios
Approximate Word Count: 3683
Approximate Pages: 15 (250 words per double-spaced page)

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