1. Profitability ratios

The profitability ratios measure the firm's ability to generate earnings. There are three basic types of profitability ratios: 

  • Profitability ratios that express earnings per dollar of invested capital
  • Profitability ratios that express earnings per dollar of sales (so-called margins)
  • Profitability ratios that express earnings on a per-share basis.


In what follows, we discuss the most important profitability metrics in detail.