Profitability Ratios: Definition, Types and Use in Businesses
Profitability Ratios are most important metrics used for financial analysis of a company and its business. Profitability ratios show how profitable a company and its business at different levels of profitability. Profitability ratios determine that is a company worthwhile to invest or not.
The insights of these ratios are useful when it is compared with historical trend of a company itself and its peers. In other words, these ratios for a company gives valuable insights for decision making when a company is compared with industry peers, or historical data of itself. It is better to compare for same period such as – comparison of a year’s first quarter with the first quarter of the previous year to measure quarterly change on YoY (Year-on-Year) basis. Consecutive quarters are also compared to know the change.