Meaning and examples
Profitability ratios relate selected profit to revenue or a resource base: sales, assets, invested capital or owners’ equity. They therefore answer a family of different questions rather than serving as interchangeable names for one return. If profit is 60, revenue is 600, average assets are 500 and average owners’ equity is 200, the simple educational ratios are 10%, 12% and 30%, respectively. A real comparison checks the recipient of profit, averaging of the base, period and accounting differences. No single ratio measures the future return of a share buyer.
How to avoid a mistake
Margin shows the share of profit in sales, whereas ROA and ROE relate it to assets and equity. When equity is negative or very small, the ROE percentage can mislead. Clarify average balances, one-off income and debt burden: a high percentage does not necessarily mean a more resilient business. More on the financial-ratio question map: [the educational analysis](/guides/financial-ratio-question-map/).
Sources and review boundaries
Support: **gl-acca-ratios**, **term-cbr-ratios**. The example is editorial. Sources check the concept, but do not confirm the reliability of anyone’s financial statements or the suitability of a decision for a particular investor.