What are Profitability Ratios?

Profitability ratios are useful analytical tools to evaluate a company’s ability to generate profits relative to all costs and expenses.

A company that has high profitability ratios relative to competitors/peers, or a company that has demonstrated to improve their profitability ratios over time, is generally viewed as a healthy and attractive company from an ownership perspective. Some examples of profitability ratios are profit margin, return on assets, and return on equity.