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Category Archives for "Profitability Ratio"
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Operating Profit Margin Ratio

This is an all-in-one guide on how to calculate Operating Profit Margin (OPM) ratio with detailed interpretation, example, and analysis. You will learn how to use its formula to examine a business operating performance.

Definition - What is Operating Profit Margin Ratio?

Like the net profit ratio, the operating profit margin ratio, also known as net operating profit percentage, allows you to examine a company’s profitability and efficiency in more detail, where generating profits from revenues is concerned.

But while both calculations measure profits against costs, the operating margin ratio scrutinizes a narrower scope of operational and overhead expenses, excluding such costs as interest payments and taxes.

This ratio will give you a middle-of-the-road view of how effective a company is at managing and controlling its expenditures as a whole.

While less refined than including a company’s total expenses, the operating margin ratio does better reflect a firm’s ability to control overall operational costs than calculations that consider only those expenses directly related to the creation or sale of goods or services.

As a percentage measurement, the operating margin ratio shows you how much of each dollar in sales translates into profits from a firm’s regular business operations, as opposed to from other income sources, such as the sale of an asset.

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Return On Investment Ratio

This is an ultimate guide on how to calculate Return on Investment Ratio (ROI) with detailed interpretation, analysis, and example. You will learn how to use this ratio formula to evaluate a business profitability.

Definition - What is Return on Investment Ratio?

The return on Investment (ROI) is a metric that measures the efficiency and return of an investment.

It’s a simple ratio between the money earned on an investment and the initial cost of the investment.

Investors can use the ratio to compare various potential investments, and decide which is the most profitable.

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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.

Definition - What is Return on Assets Ratio (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 total assets ratio should play a critical role in your evaluation of any potential investment.

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Return On Debt Ratio

This is a complete guide on how to calculate Return on Debt Ratio (ROD) with in-depth interpretation, analysis, and example. You will learn how to use its formula to evaluate a company’s profitability.

Definition - What is Return on Debt Ratio?

The return on debt (ROD), also known as the return on long-term liabilities, is a metric that measures that amount of profit a company generates in relation to the amount of debt it has on its balance sheet.

It is not a commonly used financial ratio. It is more often utilized in high-level financial modeling.

However, it can provide useful information on companies who are highly levered because it may show a company’s probability of defaulting.

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