To assess the profitability of a company it is usually better to use profitability ratios based upon balance sheet items (such as return on equity or return on capital employed)than portability ratios based upon sales (such as operating margin or net margin).

Question

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Profitability ratios based on sales, like operating margin or net margin, directly measure how efficiently a company converts sales into profits, providing a clear view of operational performance. Ratios based on balance sheet items offer a broader perspective but may not directly reflect operational efficiency.

To Assess the Profitability of a Company It Is Usually