Profitability ratios show how effectively a company makes money and adds value for shareholders. It helps to measure and evaluate the company's ability to generate profits. These ratios take into account various components of the Income statement, balance sheet and cash flow statement to analyze how the business has performed.
For the majority of profitability ratios, a higher value in comparison to a competitor's ratio or to the same ratio from a previous period indicates the company's success. Any company therefore aims for a higher ratio, which shows that the company is doing well in terms of revenue, profits, or cash flow. The majority of creditors and investors also analyse a company's return on investment in relation to its relative level of resources and assets using profitability ratios.
Return on invested capital (ROIC) measures how well a company can convert its invested capital into profit.
The Dividend Payout Ratio (DPR) is the percentage of the company's earnings paid out to the shareholders in the form of dividends.
A Dividend Yield is a financial ratio that measures the dividend paid by the company relative to stock price, and it is generally expressed as a percentage, which gives an estimation of the dividend's return on investment.
DPS or Dividend Per Share, is the amount that a company declares as a dividend for every ordinary or equity shareholder.
Cash Flow Return on Assets (CFROA) is a metric that measures how efficiently a company utilizes its assets to generate operating cash flow.