Question

What is meant by 'Profitability' of business?

What is meant by 'Profitability Ratios'?

Answer 1

Profitability of a business is the ability of a business to earn revenue and make profit out of the investments. A profit is simply the revenue left over after all the costs and expenses related to the business activities are paid. It is the measure of efficiency and success of the business. Some of the ratios that help us to measure the profitability of the business are Gross Profit Ratio, Operation Ratio, Operating profit Ratio, etc. The ratios help to understand the income earning capacity of business and income actually earned by the business.