THE
KEY
PROFITABILITY
KPIS
Oana Labes, MBA, CPAOana Labes, MBA, CPA
Founder and President
Financiario.com
Founder and President
Financiario.com
KEY METRICS TO
MEASURE, MONITOR
AND BENCHMARK
FOR BUSINESS
SUCCESS
1212
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12 Key Profitability Ratios for Business Success, Exercises of Economics
An overview of 12 key profitability ratios that are essential for measuring, monitoring, and benchmarking business success. It covers the calculation, explanation, and practical applications of each ratio, including gross profit margin, contribution margin, operating profit margin, net profit margin, return on assets (roa), return on equity (roe), return on investment (roi), return on capital employed (roce), earnings per share (eps), price-to-earnings (p/e) ratio, dividend yield, and dividend payout ratio. These ratios offer valuable insights into a company's financial health, operational efficiency, pricing strategies, and investment decisions, enabling business owners and managers to make informed decisions and drive sustainable growth.
Typology: Exercises
2023/2024
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THE
KEY
PROFITABILITY
KPIS
Oana Labes, MBA, CPAOana Labes, MBA, CPA
Founder and President Financiario.com Founder and President Financiario.com KEY METRICS TO MEASURE, MONITOR AND BENCHMARK FOR BUSINESS SUCCESS
2 CONTRIBUTION MARGIN SUBSCRIBE 12 KEY PROFITABILITY RATIOS (^) Assesses how sales cover variable costs, providing insight into pricing and production efficiency. (Sales - Variable Costs) / Sales x 100 Crucial for understanding break-even points and for developing pricing strategies.
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3 OPERATING PROFIT MARGIN RATIO SUBSCRIBE 12 KEY PROFITABILITY RATIOS (^) Gives insight into the profitability from core business operations, excluding the effects of interest and taxes. Operating Profit / Sales x 100 Reflects on operational efficiency and cost management. High ratios indicate effective control over operational expenditures.
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5 RETURN ON ASSETS (ROA) RATIO SUBSCRIBE 12 KEY PROFITABILITY RATIOS (^) Demonstrates the company's ability to generate profit from its assets. Net Income / Total Assets x 100 Higher ROA indicates efficient use of assets to generate earnings.
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6 RETURN ON EQUITY (ROE) RATIO SUBSCRIBE 12 KEY PROFITABILITY RATIOS (^) Measures profitability relative to the amount of equity. Net Income / Shareholders' Equity x 100 Essential for investors assessing the return on their investment, high ROE suggests efficient equity utilization.
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8 RETURN ON CAPITAL EMPLOYED (ROCE) RATIO SUBSCRIBE 12 KEY PROFITABILITY RATIOS (^) Measures how effectively a company uses its capital to generate profits, considering both debt and equity. Earnings Before Interest and Tax (EBIT) / (Long Term Debt + Equity) x 100 Indicates the efficiency of capital use, encompassing both equity and debt, giving a holistic view of capital efficiency.
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9 EARNINGS PER SHARE (EPS) RATIO SUBSCRIBE 12 KEY PROFITABILITY RATIOS (^) Indicates the portion of a company's profit allocated to each outstanding share of common stock. (Net Income - Dividends on Preferred Stock) / Average No. of Outstanding Shares Critical for shareholders to gauge their share of the earnings, influences stock investment decisions.
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11 DIVIDEND YIELD RATIO SUBSCRIBE 12 KEY PROFITABILITY RATIOS (^) Shows the dividend return on a stock investment. Annual Dividends per Share / Price per Share Useful for income-focused investors to assess potential income versus stock price.
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12 DIVIDEND PAYOUT RATIO SUBSCRIBE 12 KEY PROFITABILITY RATIOS (^) Illustrates the percentage of earnings distributed as dividends. Dividends per Share / Earnings per Share Provides insight into the company's dividend distribution strategy vs. reinvestment in growth.
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