Profitability Ratio Analysis

A profit can be calculated by deducting all the expenses of the company with its revenue. It represents whether a company is doing well. Profitability ratio is a significant ratio which plays a role of showing a company’s result of hard work as well as comparing its performance with its previous one to know whether it is improving or getting worse or against its competitors. It also shows whether the company is running its business efficiently.

Return on capital employed is one of the important profitability that is used to measure profitability of the company. It shows how efficient the company uses its capital. The word ‘return’ stands for the retribution from capital employed while the word ‘capital employed’ stands for the remaining

Return on its investment is very important for a company, therefore return on equity can be use to measure this. It only analyses company’s common equity. It is important because it can be compare against its peers by calculating this. Percentage is used to calculate the return on equity. The higher the percentage, the better the performance of the

It is the ratio of current assets to current liabilities. Current Assets are assets that have higher liquidity compared to non-current assets. Current Liabilities are that liabilities that need to paid off within a year. The purpose of the ratio is to make sure that they have enough current assets to cover up the current liabilities. The higher the ratio, the more liquid the company is.

Acid Test Ratio can be also named as Quick Ratio. Acid Test Ratio is actually the same with Current Ratio. The only difference is that Acid Test Ratio is to measure the company’s current assets are capable enough to cover up it’s current liabilities without selling its inventory. It doesn’t mean that it’s better if a company has a very high ratio of current assets to current liabilities. Because having too many current assets shows that a company doesn't make full use of their excessive assets to make more profit.

Efficiency is the ability of doing a task or achieve a target using the shortest amount of time and effort. Efficiency ratio, just like how it is named, plays a role of measuring the efficiency of a company. It reveals how efficient a company to generate sales, to gather its debts and to repay their debts. It is vital as it affects the profitability of the company. That is, higher efficiency brings higher profitability and vice