Profitability ratios allow one to measure the ability of the firm to earn an adequate profit compared to sales, total assets, and invested capital.

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Profitability ratios (such as gross profit margin, net profit margin, return on assets, and return on equity) are tools used to evaluate the performance of a company and its ability to generate profits in relation to its various investments and expenses.

Profitability Ratios Allow One to Measure the Ability of the Firm