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Category Archives for "Profitability Ratio"
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Return on Sales Ratio

This is an ultimate guide on how to calculate Return on Sales (ROS) ratio with in-depth interpretation, analysis, and example. You will learn how to use its formula to evaluate a company's profitability.

What is Return on Sales (ROS)?​

The return on sales ratio gives you an effective way to measure the efficiency with which a company converts its revenues into profits.

Essentially an assessment of a firm’s financial performance, the ROS ratio shows you how much of a company’s operational income is actually yielding a net gain.

This profitability ratio is particularly useful when evaluating a potential investment opportunity because it allows you to compare companies within the same industry, regardless of their size.

By comparing earnings to net sales, the ratio calculates the return on sales as a percentage that can also be used to conveniently analyze the operational efficiency of the same business, over a range of reporting periods.

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13

Return on Common Equity Ratio

This is a complete guide on how to calculate Return on Common Stockholders Equity (ROE) ratio with detailed analysis, interpretation, and example. You will learn how to utilize its formula to assess a firm's profitability.

What is Return on Equity (ROE)?

The return on common stockholders equity ratio, often known as return on equity or ROE, allows you to calculate the returns a company is able to generate from the equity that common shareholders have invested in it.​

This ratio is a great tool for keeping tabs on a business you already own shares in, or for evaluating one you’re considering as an investment.

The more capable a company is of yielding a profit from equity, the higher its return on equity will be.

This ratio lets you know exactly how much in net income a firm is producing from each dollar of the equity invested by its common shareholders.

As an investor, the return on equity figure is not only important for showing you how effectively a company is using your money to generate returns, it also demonstrates how efficient the firm’s management team is at using equity to support ongoing operations, and to fund growth and expansion.

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12

Return on Capital Employed Ratio

This is an in-depth guide on how to calculate Return on Capital Employed (ROCE) ratio with detailed analysis, interpretation, and example. You will learn how to use its formula to assess a firm's profitability.

What is Return on Capital Employed Ratio?​

One of the many tools you can use to measure a company’s profitability is the return on capital employed or ROCE ratio.

This ratio compares a firm’s net earnings from operations to the amount of its capital employed, in order to determine how much profit is being generated from each dollar of that capital.​

The capital employed figure indicates the amount of capital investment that’s needed for a particular business to operate successfully.

In other words, it represents the combined amount of a company’s shareholder equity, plus its long-term liabilities.

Because it considers a company’s long-term debt obligations, the ROCE ratio takes a longer view of the firm’s continued financial viability.

Instead of simply giving you a picture of how efficiently the firm’s current assets or shareholder investment is producing a profit, the ratio gauges profit performance based on both equity and debt.

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Return on Assets Ratio

This is an ultimate guide on how to calculate Return on Assets (ROA) ratio with in-depth interpretation, analysis, and example. You will learn how to use its formula to evaluate a company's profitability.

What is Return on Assets (ROA)?

When you’re considering investing in a company, you want to feel confident that the business in question is performing effectively enough to generate the greatest returns possible, with the fewest assets.

By calculating a firm’s ROA, you can measure its net earnings against its total assets to determine just how successfully it’s using its resources to profit from its regular business operations.​

Not only will this process allow you to judge how efficient a company’s management team is at generating earnings, it can also indicate just how capable the company is of funding its own growth and expansion.

Considering the fact that the entire purpose behind a firm’s assets is to produce revenue, the return on assets ratio should play a critical role in your evaluation of any potential investment.

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