Net sales in the year amount to Rs 5,00,000, interest Rs 10,000 and taxes Rs 20,000. What classifies as a good net profit ratio can vary by industry. A high ratio represents better the company is. Download ClearTax App to file returns from your mobile phone. This ratio is just as it sounds: Return on sales = net earnings / sales Return on sales (ROS) tells you how much profit a firm generated per dollar of sales. Profitability ratios are financial ratios which standardize a company’s income generation. These ratios basically show how well companies can achieve profits from their operations. Efiling Income Tax Returns(ITR) is made easy with ClearTax platform. Investors and creditors can use profitability ratios to judge a company’s return on investment based on its relative level of resources and assets. File Income tax returns for free in 7 minutes, Get expert help for tax filing or starting your business, Curated Mutual Funds & plans for tax savings, Complete solution for all your e-invoicing needs, I-T, e-TDS & Audit Software for CAs & Tax Professionals, Employee health plan, incl. Common examples of profitability ratios include return on sales, return on investment, return on equity, return on capital employed (ROCE), cash return on capital invested (CROCI), gross profit margin and net profit margin. When doing a simple profitability ratio analysis, the net profit margin is the most often margin ratio used. The gross profit is calculated by deducting all the direct expenses called cost of goods sold from the sales revenue. This ratio measures the earning per rupee of assets invested in the company. Gross Profit= Sales + Closing Stock – op stock – Purchases – Direct Expenses. 1) Return on Equity = Profit After tax / Net worth, 2) Earnings Per share = Net Profit / Total no of shares outstanding, 3) Return on Capital Employed = Net Operating Profit / Capital Employed * 100, 4) Return on Assets = Net Profit / Total Assets, 5) Gross Profit = Gross Profit / sales * 100, 6) Net Profit = Net Profit / Sales*100. This ratio measures Profitability of equity fund invested the company. Formula: Net Profit ÷ Total no of shares outstanding. Liquidity Ratios. The profit margin ratio formula can be calculated by dividing net income by net sales.Net sales is calculated by subtracting any returns or refunds from gross sales. It also measures how profitably owner’s funds have been utilized to generate company’s revenues. For example, in the retail industry, a good net profit ratio might be between 0.5% and 3.5%. Liquidity ratios measure the company’s ability to meet current liabilities. Formula: Amount Distributed to Shareholders ÷ No of Shares outstanding. Other industries might consider 0.5 … Financial KPI: Examples of Profitability Ratios. This evaluation frequently utilizes financial … The three ways of expressing profit can each be used to construct what are known as profitability ratios. Liquidity ratios are financial ratios that measure a company’s ability to repay both short- and long-term obligations. Investors and creditors can use profitability ratios … The current ratio, also known as the working capital ratio, measures the capability of measures a company’s ability to pay off short-term liabilities with current a… Common liquidity ratios include the following:The current ratioCurrent Ratio FormulaThe Current Ratio formula is = Current Assets / Current Liabilities. Operating Profit = Gross Profit – (Operating Costs, Including Selling and Administrative Expenses) 3. 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