Sample Thesis Paper
Profitability Ratios are used to gauge the capacity of the firm to make a profit. They give a very good idea whether the company has or has not been successful in managing and deploying resources to earn income and help in Share holder wealth maximization. The Profitability Ratios also make it easy to understand the reasons why or why not a company has been successful or unsuccessful in making a profit and surviving in the competitive environment.
These ratios when compared to the ratios of other firms give an idea of how well the company is doing in comparison to competition. Also, as these ratios are expressed as percentages, it is also possible to compare firms that are not the same size or stature. Moreover, a company can compare its own profitability ratios for different years to see whether it has improved or worsened as compared to previous years. The most prominent Profitability Ratios are Net Profit to Sales Ratio, Gross Profit to Sales Ratio, Operating Profit to Sales Ratio, Return on Assets and Return on Equity (Berman et al 2006).