Profitability ratios are so important , because of these ratios , we can take several decision for improving our business concern . These ratios tells us the basic relationship between profit and net sale . What amount of return we have receive on the basis of our sale . Is it good or not . If this is not good then what should we do in the improve actions of company.
There following main profitability ratios which is calculated in any company type of business.
1.Gross profitability ratio = Gross profit / Net Sale X 100
2.Operating Ratio = Operating Cost / Net Sale X 100
3.Operating Profit ratio = Operating Profit / Net Sale X 100
4.Net Profit ratio = Net profit / Net Sale X 100
5.Rate on Investment = Net profit before interest and tax / Capital Employed X 100
6.Earning Per Share (EPS)
Net profit after interest , tax and pref. dividend
= ____________________________________ X 100
Numbers of equity shares
7. Dividend Per Share (DPS ) Price Earning Ratio
Dividend on equity shares
= ____________________________________ X 100
Numbers of equity shares
8. Price Earning Ratio = current market price of share / earning per share
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