Profitability ratios measure how profitable a company is and are used to assess its performance and efficiency. Based on the income statement and balance sheet of a company, these ratios are calculated. In terms of profitability ratios, there are several types, each providing a different viewpoint.Read more
Profitability ratios measure how profitable a company is and are used to assess its performance and efficiency. Based on the income statement and balance sheet of a company, these ratios are calculated.
In terms of profitability ratios, there are several types, each providing a different viewpoint.
The following are some common profitability ratios:
Gross profit margin: This ratio measures the percentage of revenue that remains after the cost of goods sold has been deducted. Producing and selling efficiently is indicated by this metric.
Net profit margin: An organization’s net profit margin is the portion of revenue left after all expenses have been deducted. A company’s profitability is measured by this indicator.
Return on assets (ROA): This ratio measures how profitable a company’s assets are. In other words, it indicates how effectively a company generates profits from its assets.
Return on equity (ROE): This ratio measures the profitability of a company’s equity. It shows how effectively a company generates profits from its shareholders’ investments.
Analysts and investors use profitability ratios to evaluate a company’s performance and profitability ability.
An investor or analyst can evaluate a company’s relative strength and identify potential opportunities or risks by comparing its profitability ratios with its peers or its industry averages.
Here are 10 examples of accounting entries: A company purchases $500 worth of office supplies on credit from a supplier. Office supplies expense account would be debited Accounts payable would be credited A firm receives $1,000 in cash from a customer for services rendered. In this case, CashRead more
Here are 10 examples of accounting entries:
A company purchases $500 worth of office supplies on credit from a supplier.
Office supplies expense account would be debited
Accounts payable would be credited
A firm receives $1,000 in cash from a customer for services rendered. In this case,
Cash account would be debited
Service revenue account would be credited
A business pays $250 in salaries to its employees.
A debit would be made to the salaries expense account
A credit would be made to the cash account
A business borrows $5,000 from a bank and receives the funds as a loan. The entry would be,
A debit to the bank account
A credit to the loan payable account
A company sells $800 worth of inventory to a customer for cash.
The entry would be a debit to the cash account
A credit to the sales revenue account
A firm purchases $3,000 worth of equipment on credit from a supplier.
The entry would be a debit to the equipment account
A credit to the supplier’s account
A company incurs $500 in advertising expenses for a new marketing campaign (cash).
The entry would be a debit to the advertising expense account
A credit to the cash account
A firm collects $1,200 from a customer. The entry would be,
A debit to the cash account
A credit to the customer’s account
A business pays $700 in rent for its office space. The entry would be,
A debit to the rent expense account
A credit to the cash account
An organization pays off a $2,000 loan to the bank. The entry would be,
What are profitability ratios?
Profitability ratios measure how profitable a company is and are used to assess its performance and efficiency. Based on the income statement and balance sheet of a company, these ratios are calculated. In terms of profitability ratios, there are several types, each providing a different viewpoint.Read more
Profitability ratios measure how profitable a company is and are used to assess its performance and efficiency. Based on the income statement and balance sheet of a company, these ratios are calculated.
In terms of profitability ratios, there are several types, each providing a different viewpoint.
The following are some common profitability ratios:
Gross profit margin: This ratio measures the percentage of revenue that remains after the cost of goods sold has been deducted. Producing and selling efficiently is indicated by this metric.
Net profit margin: An organization’s net profit margin is the portion of revenue left after all expenses have been deducted. A company’s profitability is measured by this indicator.
Return on assets (ROA): This ratio measures how profitable a company’s assets are. In other words, it indicates how effectively a company generates profits from its assets.
Return on equity (ROE): This ratio measures the profitability of a company’s equity. It shows how effectively a company generates profits from its shareholders’ investments.
Analysts and investors use profitability ratios to evaluate a company’s performance and profitability ability.
An investor or analyst can evaluate a company’s relative strength and identify potential opportunities or risks by comparing its profitability ratios with its peers or its industry averages.
See lessWhat are 10 examples of journal entries?
Here are 10 examples of accounting entries: A company purchases $500 worth of office supplies on credit from a supplier. Office supplies expense account would be debited Accounts payable would be credited A firm receives $1,000 in cash from a customer for services rendered. In this case, CashRead more
Here are 10 examples of accounting entries:
I also found a long list of example journal entries and a free PDF to download here.
See less