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Profitability ratios


There are three main ratios that can be used to measure the profitability of a business:

1. The gross profit margin.
2. The net profit margin.
3. Return on Capital Employed (R.O.C.E).

The gross profit margin

This measures the gross profit of the business as a proportion of…

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that must be paid on profits to the Inland Revenue and, if the business is a 'company', covering the
dividend payments to shareholders.

Any profit which remains is kept in the business for reinvestment and is called 'retained profit'.
Again, the business would want this margin to be as high…

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