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M2 1. Profitability Ratio

Profitability ratios assess a company's earnings compared to other metrics and allow investors to evaluate financial reporting quality and how often a company generates profit from revenue or assets. There are three main types of profitability ratios: gross profit percentage of sales, which indicates the association between gross income and total sales income and is a common measure of operating efficiency; net profit percentage of sales, which shows net income generated from total sales; and return on employed capital, which measures profitability relative to capital invested in the business.

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35 views1 page

M2 1. Profitability Ratio

Profitability ratios assess a company's earnings compared to other metrics and allow investors to evaluate financial reporting quality and how often a company generates profit from revenue or assets. There are three main types of profitability ratios: gross profit percentage of sales, which indicates the association between gross income and total sales income and is a common measure of operating efficiency; net profit percentage of sales, which shows net income generated from total sales; and return on employed capital, which measures profitability relative to capital invested in the business.

Uploaded by

Rubab Kanwal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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M2

1. PROFITABILITY RATIO

Profitability is a calculation of a company's earnings compared to another. Profitability lets the


client assess the quality of financial reporting, such that the investor can realize how often profit
business makes from revenue or capital assets. The productivity may be calculated by three
specific types: gross profit percentage, net profit percentage of sales and return of employed
capital.

a. Gross profit percentage of sales:

The Gross profit percentage tells us about your goods and services' profitability as well as how
much it will costs a company to generate the product. This formula took Sales and Gross Profit
information. GP percentage is a measure of productivity which indicates the association between
gross income and total net sales income. It's really a common method of assessing the operating
efficiency of the organization.

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