10 Profitability Ratios everyone should know
I'll teach everything to you in 2 minutes:
I'll teach everything to you in 2 minutes:
1️⃣ Gross margin (GM)
🎯 What?
Company's gross profit compared to its revenue
💡 Formula?
(Sales - COGS)/Sales
🎯 What?
Company's gross profit compared to its revenue
💡 Formula?
(Sales - COGS)/Sales
2️⃣ EBIT Margin
🎯What?
Percentage of sales that remains as profit before interest and taxes
💡 Formula?
EBIT / Sales
🎯What?
Percentage of sales that remains as profit before interest and taxes
💡 Formula?
EBIT / Sales
3️⃣ Profit Margin
🎯What?
Percentage of sales that remains as profit after all costs
💡 Formula?
Net Income / Sales
🎯What?
Percentage of sales that remains as profit after all costs
💡 Formula?
Net Income / Sales
4️⃣ Free Cash Flow Margin
🎯What?
Shows you what percentage of sales is translated in pure cash for the company
💡Formula?
Free Cash Flow / Sales
🎯What?
Shows you what percentage of sales is translated in pure cash for the company
💡Formula?
Free Cash Flow / Sales
5️⃣ Return On Assets (ROA)
🎯What?
Indicates how profitable a company is in relation to its total assets
💡 Formula?
Net Income / Total Assets
🎯What?
Indicates how profitable a company is in relation to its total assets
💡 Formula?
Net Income / Total Assets
6️⃣ Return On Equity (ROE)
🎯What?
Measures how profitable a company is in relation to its equity (the money of shareholders)
💡 Formula?
Net Income / Equity
🎯What?
Measures how profitable a company is in relation to its equity (the money of shareholders)
💡 Formula?
Net Income / Equity
7️⃣ Return On Invested Capital (ROIC)
🎯What?
Shows you how efficiently a company is allocating capital
💡 Formula?
NOPAT / Total Invested Capital
🎯What?
Shows you how efficiently a company is allocating capital
💡 Formula?
NOPAT / Total Invested Capital
8️⃣ Return On Capital Employed (ROCE)
🎯What?
Measures the profitability of a company and the efficiency with which it uses its capital
💡 Formula?
EBIT / Long-term debt + equity
🎯What?
Measures the profitability of a company and the efficiency with which it uses its capital
💡 Formula?
EBIT / Long-term debt + equity
9️⃣ Earnings Per Share (EPS)
🎯What?
How much money a company makes for each share outstanding
💡 Formula?
Net Income / Shares Outstanding
🎯What?
How much money a company makes for each share outstanding
💡 Formula?
Net Income / Shares Outstanding
🔟 Free Cash Flow Realization
🎯What?
Measures how much earnings are translated into free cash flow
💡Formula?
Free Cash Flow / Net Income
🎯What?
Measures how much earnings are translated into free cash flow
💡Formula?
Free Cash Flow / Net Income
Here's an overview of all profitability ratios mentioned:
That's it for today.
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