After learning P/E, EPS and ROE, profitability ratios complete the picture and show how efficiently a company turns its resources into profit.
Return on Assets (ROA)
Net profit ÷ total assets. It measures how efficiently assets generate profit. A high ROA = efficient management. What counts as "high" varies by sector (banks lower, industrials higher).
EBITDA
Earnings Before Interest, Taxes, Depreciation and Amortization. It gives a "raw" operating-profitability view, stripping out financing structure and taxes — useful for comparing companies with different debt levels.
Profit margins
- Gross margin: gross profit ÷ revenue — production/pricing efficiency.
- Net margin: net profit ÷ revenue — the bottom line after all expenses.
How to use them
Compare ratios within the same sector and over time for the same company; absolute numbers matter less than the trend and the comparison. Find the metrics on the stock pages. See also how to tell if a stock is cheap or expensive.
Frequently asked questions
What's the difference between ROA and ROE?
ROE measures return on shareholders' money, ROA on total assets (including debt-funded ones); the gap between them reflects financial leverage.
Why is EBITDA used?
To compare operating profitability across companies with different debt and tax levels, but it ignores capital-investment cost, so don't use it alone.
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