Profitability ratios reflect the overall effect of a firm’s managerial efficiency:
These are ratios that are indicators of a firm’s breakeven point and the amount of money that is made once breakeven is achieved given a certain level of sales.
They reflect the results of decisions that management has made in order to maximize profitability.
They are a class of financial metrics that are used to assess a business’s ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time.
This ratio shows us how efficient a firm is at providing services before paying sales, marketing and fixed costs. In my opinion Gross Profit is the single most important financial ratio.
Operating Expense %
If Operating expenses exceed gross margin you will operate at a loss. If they are truly fixed, the fixed cost percentage will fall as a firm grows.
This is what you work for – net income
Earnings before interest taxes depreciation and amortization. This is cash flow!
Return on Assets
This is one that, for comparison purposes, works for companies that employ a high value of assets. From my prospective this ratio is better suited to looking at your portfolio of investments as opposed to fixed assets. Our reasoning is that our biggest asset in the service business is our people. With the exception of construction, most firms don’t employ high values of assets but rather they do use a high value of direct labor.
Return on Equity
This ratio answers the question: What is the return on that piece of the balance sheet called equity? Again, it is great to do comparisons with other firms, but equity is such loose concept in a small, privately held businesses.
|Gross Profit %||GP / Revenue|
|Operating Expense %||Operating Expenses / Revenue|
|Profit Margin||Net Income / Revenue|
|EBITDA||Earnings before Interest, Taxes, Depreciation / Amortization|
|Return on Assets||Net Income / Total Assets|
|Return on Equity||Net Income / Total Equity|
|DESCRIPTION||TOTAL COMPANY||COMMERCIAL||RESIDENTIAL||WOOD DESTROYING||BED BUG||OTHERS|
|Return on Assets||54.00%|
|Return on Equity||2.10%|