Profitability ratios

• Measures the performance of a company.
• Sometimes referred to as the primary ratio and compares the profit made by the size of the company. Meaning that it can get an accruite margin what ever the business.
• The ROCE can very between businesses.
• The formula for this is

                     Profit before tax and interest

         ROCE=--------------------------------------------     X100

                                Long term capital employed

Gross profit margin shows the gross progfit made on sales turnover.

Formula:

                 Gross profit

             -----------------------            X100.

                    Turnover

The net profit margins how the business controls it's overheads. If it smalls then it suggests that overheads are low. Though if it large it suggest overheads are high. The formula for this is

                                     Net profit before tax and intrest

Net profit margin=  ----------------------------------------------------

                                                Turnover.