Category Archives for "Profitability Ratio"

Return On Operating Assets (ROOA)

This is a detailed guide on how to calculate Return on Operating Assets (ROOA) with thorough interpretation, example, and analysis. You will learn how to use this ratio formula to assess a company's profitability.

Definition - What is Return on Operating Assets?

The return on operating assets (ROOA) measures the amount of profit a company makes with respect to its operating assets.

ROOA is like return on assets (ROA); the only difference being that ROOA only includes the assets that are involved in running the business (operating assets), while ROA includes all assets of the company.

ROOA allows management to understand which assets are required for business operations, and which can eventually be eliminated.

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Net Profit Margin Ratio

This is a detailed guide on how to calculate Net Profit Margin ratio (NPM) with thorough interpretation, analysis, and example. You will learn how to use its formula to evaluate a firm's profitability.

Definition - What is Net Profit Margin Ratio?​

When it comes to evaluating a company’s overall performance for investment purposes, the net profit margin ratio or net profit percentage is one of the most useful financial ratios.

By measuring net income against revenues, the profit margin ratio demonstrates exactly what percentage of each sales dollar remains as profit after a company’s expenses have been paid.

When you use this calculation to measure the results from a range of accounting periods, you can track the trend of a company’s financial accomplishments over a period of time.

You can also use the net profit ratio to contrast and compare the commercial performance of the business you’re interested in, with its closest competitors.

In the end, what this ratio really shows you is just how effective a business is at converting its sales into profits.

This is crucial information, since your investment dividends will rely heavily on those net earnings.

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Return On Average Equity Ratio

This is a complete guide on how to calculate Return on Average Equity (ROAE) with detailed analysis, interpretation, and example. You will learn how to use its formula to assess a company’s profitability.

Definition - What is Return on Average Equity?

The return on average equity (ROAE) is a measure of a company’s net income in relation to its average shareholders’ equity value over the past two years.

It is similar to return on equity (ROE), with the only difference being the denominator.

In the ROA calculation, the denominator is shareholders’ equity, as opposed to average shareholders’, which is used as the denominator in ROAE.

The distinction is made between the two because shareholders’ equity is constantly changing from share buybacks and additional stock issuance.

So ROAE uses the average shareholders’ equity because some investors argue that it is a more accurate figure than regular shareholders’ equity.

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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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