Gross profit margin: This ratio measures the percentage of revenue that exceeds the cost of goods sold (COGS). A higher gross profit margin indicates that a company is efficiently managing its production costs and has a healthy buffer to cover operating expenses.
Operating profit margin: The operating profit margin assesses the proportion of revenue left after covering operating expenses, excluding taxes and interest. It reflects the company’s ability to generate profit from its core business operations, providing insight into operational efficiency.
Net profit margin: This ratio calculates the percentage of revenue that remains as profit after all expenses, including taxes and interest, have been deducted. This ratio shows a company’s ability to convert revenue into actual profit. A higher net profit margin indicates a strong overall financial performance and the potential for sustainable growth
Return on assets (ROA): ROA measures how effectively a company is using its assets to generate profit. A higher ROA indicates that the company is efficiently utilizing its assets to produce earnings, which is crucial for long-term sustainability.
Return on equity (ROE): ROE evaluates the return generated on shareholders’ equity, showing how well a company is using investors’ funds to generate profit. A strong ROE suggests effective management and a potentially attractive investment opportunity.