There are multiple ways to evaluate how well a company is currently performing and estimate how well they will perform in the future. One could simply look a company’s financial report and statements, but the best way to truly evaluate how well a company is performing is to complete a financial analysis through the use of financial ratios. Financial ratios can be broken down into different categories that focus on a company’s profitability, liquidity, and solvency or leverage.
Profitability ratios are used to assess how well a company is able to generate profits in relation to expenses that they incur. Common ratios seen in this category include gross profit margin, return on assets, and return on equity, also known as ROA and ROE respectively.
Profitability ratios are used to assess how well a company is able to generate profits in relation to expenses that they incur. Common ratios seen in this category include gross profit margin, return on assets, and return on equity, also known as ROA and ROE respectively.