Profitability Ratios

Question 1

Return on Equity (ROE)

Answer 1

• A company’s profitability in relation to its shareholders’ equity.
• A high ROE indicates that the company is generating a high return on its shareholders’ equity.

Question 2

Return on Assets (ROA)

Answer 2

• A company’s profitability in relation to its assets.
• A high ROA indicates that the company is generating a high return on its assets.

Question 3

Return on Invested Capital (ROIC)

Answer 3

• A company’s profitability in relation to its invested capital.
• A high ROIC indicates that the company is generating a high return on its invested capital.

Question 4

Gross Margin

Answer 4

• A company’s profitability on its cost of goods sold.
• A high gross margin indicates that the company is generating a high profit on its sales.

Question 5

EBITDA Margin

Answer 5

• A company’s profitability before accounting for interest, taxes, depreciation, and amortization.
• A high EBITDA margin indicates that the company is generating a high profit on its sales.

Question 6

Operating Margin/ EBIT

Answer 6

• A company’s profitability before accounting for interest and taxes. Earnings before interest and tax.
• A high operating margin indicates that the company is generating a high profit on its sales.

Question 7

Net Income Margin

Answer 7

• A company’s profitability after accounting for all expenses.
• A high net income margin indicates that the company is generating a high profit on its sales.