What is the purpose of computing profitability ratios?
A) To determine liquidity
B) To determine the most efficient use of resources
C) To determine the liquidity of the firm
D) To determine the potential risk of business activity
E) To determine the potential returns investors can expect

Question

Quizplus · Accepted Answer

The purpose of computing profitability ratios is to determine the potential returns investors can expect. Profitability ratios measure a company's ability to generate earnings in relation to its revenue, assets, and equity. These ratios are important for investors when analyzing a company's financial performance and deciding whether or not to invest in the company.

What Is the Purpose of Computing Profitability Ratios