Profitability Ratios
Gross Profit Margin= Gross Profit/Sales
Gross Profit margin illustrates how efficient the firm is in producing each unit of a product
Net Profit Margin=Profit After Tax/Sales
Return on Equity=Profit After Tax/Net worth
Financial ratios become meaningful if it is used to examine the trend, industry norm and peer group comparison. It helps to analyze the business operations and also in understanding Stock Market. The current operations can be compared to the past performance by implementing trend analysis. Industry ratios can be compared to the firm’s ratios to know where the company stands in its respective industry. Ratio analysis is a process to identify the strengths and weakness of a firm. It helps to ascertain the financial condition of a company.