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Financial Ratios by Sandeep Goel

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Chapter 2

Concept of Profitability Ratios

The Present Chapter

This chapter gives an overview of the concept of profitability ratios.

Profitability Analysis

For every firm, the key objective is “maximizing profits.” Profitability analysis is concerned with the evaluation of the overall efficiency and ­performance of a firm. Profitability ratios help in the analysis of the ­operational health of the firm for profit generation. If the firm is able to garner profits as a result of its core operating activities, it is a sign of good operational health of the firm. Such a firm can go a long way by means of its core efficiency.

Profitability ratios can be broadly divided into two subgroups—­margins and returns.

  • Margins—These ratios represent the firm’s ...

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