10

Financial Profitabilty
Ratios
With Expanations & Formulas

Mohamed Samir Rashed CMA , IFRS

APRIL2023 Mohamed Samir
 1
Gross
Profit
Margin

Defination

This ratio measures the percentage of

sales that exceed the cost of goods sold.

Formula

(Gross Profit / Revenue) x 100

Explanation

A higher gross profit margin indicates

that a company is generating more
revenue than it spends on producing
goods or services.

Mohamed Samir Rashed Follow

CMA , IFRS me
 2
Net
Profit
Margin

Defination

This ratio measures the percentage of

revenue that remains after all expenses
have been deducted, including taxes and
interest.
Formula

(Net Profit / Revenue) x 100

Explanation

A higher net profit margin indicates

that a company is generating more
profit relative to its revenue.

Mohamed Samir Rashed Follow

CMA , IFRS me
 3
Return on
Assets
(ROA)

Defination

This ratio measures the efficiency of a

company's use of its assets to generate
profits.
Formula

(Net Profit / Total Assets) x 100

Explanation

A higher ROA indicates that a company

is generating more profit relative to its
investment in assets.

Mohamed Samir Rashed Follow

CMA , IFRS me
 4
Return on
Equity
(ROE)

Defination

This ratio measures the return that

shareholders receive on their
investment in a company.
Formula

(Net Profit / Shareholders' Equity) x

100
Explanation

A higher ROE indicates that a company

is generating more profit per dollar of
shareholder investment.

Mohamed Samir Rashed Follow

CMA , IFRS me
 5
Earnings
per Share
(EPS)

Defination

This ratio measures the amount of

profit generated per outstanding share
of common stock.
Formula

(Net Income - Preferred Dividends) /

Average Common Shares Outstanding
Explanation

A higher EPS indicates that a company

is generating more profit per share of
common stock.

Mohamed Samir Rashed Follow

CMA , IFRS me
 6
Price to
Earnings
(P/E)
Ratio

Defination

This ratio measures the market's

expectation of a company's future
earnings potential.
Formula

Market Price per Share / Earnings per

Share (EPS)
Explanation

A higher P/E ratio indicates that

investors expect a company to generate
higher earnings in the future.

Mohamed Samir Rashed Follow

CMA , IFRS me
 7
Operating
Profit
Margin

Defination

This ratio measures the percentage of

revenue that remains after deducting all
operating expenses, but before interest
and taxes.
Formula

(Operating Profit / Revenue) x 100

Explanation

A higher operating profit margin

indicates that a company is generating
more profit from its core business
operations.

Mohamed Samir Rashed Follow

CMA , IFRS me
 8
Return on
Investment
(ROI)

Defination

This ratio measures the return that a

company generates on its investment in
a specific project or initiative.

Formula

(Net Profit from Investment /

Investment Cost) x 100
Explanation

A higher ROI indicates that a company

is generating more profit per dollar of
investment.

Mohamed Samir Rashed Follow

CMA , IFRS me
 9
Debt-to-
Equity
Ratio

Defination

This ratio measures the amount of debt

that a company has relative to its
shareholder equity.

Formula

Total Debt / Shareholders' Equity

Explanation

A higher debt-to-equity ratio indicates

that a company is more reliant on debt
financing, which can impact
profitability.

Mohamed Samir Rashed Follow

CMA , IFRS me
 10
Current
Ratio

Defination

This ratio measures a company's ability

to pay off its current liabilities using its
current assets.

Formula

Current Assets / Current Liabilities

Explanation

A higher current ratio indicates that a

company is better able to meet its
short-term financial obligations, which
can impact profitability.

Mohamed Samir Rashed Follow

CMA , IFRS me
 Mohamed Samir Rashed
CMA , IFRS

I am posting about Financial content

Follow me on