Profitability RatiosThe Higher the Better (Mostly)

Profitability ratios help you evaluate a company’s ability to generate profits. There are dozens of them, a fact that helps keep the financial folks busy. But here we’re going to focus on just the most important. These are really the only ones most managers need to understand and use. Profitability ratios are the most common of ratios. If you get these, you’ll be off to a good start in financial statement analysis.

Before we dive in, however, do remember the artful aspects of what we’re looking at. Profitability is a measure of a company’s ability to generate sales and to control its expenses. None of these numbers is wholly objective. Sales are subject to rules as to when the revenue can ...

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