Maximizing Profitability: A Comprehensive Analysis of Business Profitability Metrics

📊Assessing profitability helps businesses gauge their ability to generate sustainable profits.

🔍The asset turnover ratio measures a company's ability to generate sales using its total assets.

💰Return on total assets (ROA) evaluates the profitability of a business by comparing net income to average total assets.

📈Return on stockholders equity (ROE) measures the profitability of a company based on the funds invested by stockholders.

💡Earnings per share (EPS) indicates the amount of net income allocated to each outstanding share of common stock.

What is the asset turnover ratio?

—The asset turnover ratio measures a company's ability to generate sales using its total assets. It is computed by dividing net sales by the average total assets.

How is return on total assets (ROA) calculated?

—Return on total assets (ROA) is computed by dividing net income by the average total assets. It provides insights into a company's profitability.

What does return on stockholders equity (ROE) assess?

—Return on stockholders equity (ROE) evaluates the profitability of a company based on the funds invested by stockholders. It measures how well a company generates income from the equity investors have contributed.

What is earnings per share (EPS)?

—Earnings per share (EPS) is the amount of net income allocated to each outstanding share of common stock. It helps investors understand the profitability of their investment.

How is the price earnings ratio (P/E ratio) determined?

—The price earnings ratio (P/E ratio) is calculated by dividing the market price per share by the earnings per share. It reflects market confidence in the company's future performance.

00:00The ultimate goal of any business is to generate a sustainable profit.

00:26The asset turnover ratio evaluates a company's ability to generate sales using its total assets.

01:43Return on total assets (ROA) compares net income to average total assets to assess profitability.

03:23Return on stockholders equity (ROE) measures profitability based on funds invested by stockholders.

04:40Earnings per share (EPS) indicates the amount of net income allocated to each outstanding share of common stock.

05:45The price earnings ratio (P/E ratio) compares market price per share to earnings per share to reflect market confidence.

06:36Dividends per share shows how much dividends are available for each share of common stock.