Profitability & Return Ratios
How efficiently does the business turn revenue into profit?
Profitability ratios measure how effectively a company converts revenue and invested capital into profit. Margin ratios track how much of each sales dollar survives to the bottom line, while return ratios such as ROE and ROIC show how much profit management generates from the capital at its disposal. Consistently high returns are a hallmark of durable competitive advantage.
Put these metrics to work
Screen stocks by profitability13 terms in this topic
Return on equity (ROE)
A profitability ratio measuring how effectively management uses equity to generate profits, calculated as net income divided by shareholders' equity.
Return on assets (ROA)
A profitability ratio indicating how efficiently a company uses its assets to generate profit, calculated as net income divided by total assets.
Return on invested capital (ROIC)
A profitability metric measuring how well a company generates cash flow relative to the capital invested, calculated as NOPAT divided by invested capital.
Return on capital employed (ROCE)
A profitability ratio measuring how efficiently a company generates profits from its capital employed, calculated as EBIT divided by capital employed.
Return on sales (ROS)
A profitability ratio showing how much profit a company generates from its revenue, calculated as operating profit divided by net sales.
Gross margin
The percentage of revenue exceeding the cost of goods sold, calculated as (revenue minus COGS) divided by revenue, indicating pricing power and efficiency.
Operating (EBIT) margin
A profitability ratio showing operating income as a percentage of revenue, measuring operational efficiency before interest and taxes.
Net profit margin
A profitability ratio showing the percentage of revenue remaining after all expenses, calculated as net income divided by revenue.
EBITDA margin
A profitability metric showing EBITDA as a percentage of revenue, indicating operational efficiency before accounting and financial deductions.
Contribution margin
The revenue remaining after subtracting variable costs, used to cover fixed costs and generate profit, expressed per unit or as a ratio.
Degree of operating leverage
A measure showing how a company's operating income changes with a change in sales, indicating the sensitivity of profits to sales volume changes.
Piotroski F-Score
A 0 to 9 score of a company's financial strength based on nine tests of profitability, leverage, liquidity, and operating efficiency.
Asset turnover ratio
An efficiency ratio measuring how much revenue a company generates from its assets, calculated as revenue divided by average total assets.