Profitability ratios
Profitability ratios measure the performance of a business by comparing its profit to other figures in the same set of financial statements.
| Ratio | Formula | Notes |
|---|---|---|
| Return on capital employed (ROCE) | Profit before interest ÷ Capital employed × 100 | Shows how much profit is generated from the capital invested in the business. |
| Gross margin | Gross profit ÷ Sales × 100 | Improve: raise selling prices, find cheaper supplies. Lowered by: higher trade discounts, selling cheaper. |
| Profit margin | Net profit ÷ Sales × 100 | Improve: control expenses, increase other income. Lowered by: high expenses, less income received. |