|Written by Sunil Tinani|
These ratios measure how skillful a company is at generating profits.
1. Gross Margin
Gross Margin = Gross Profit ÷ Sales
This ratio depicts the percentage of gross profit (i.e., sales minus direct cost related to the manufacturing process) on goods sold. It indicates how profitable a company is at the manufacturing or core level. Compare this with gross margins of company's peers to check if the company is making profits that are comparable to industry standards.
2. Return-on-Investment (ROI) ratios
Returns on equity employed and on assets employed also help figure out if the company is successfully employing assets and equity to generate profits. Here is how these ratios are calculated:
Return-on-Assets Ratio = Net Income ÷ Total Assets
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