Profitability Ratios¶

Gross Profit Margin¶

Gross Profit Margin is the ratio between a business' gross profit and revenue, expressed as a percentage. A high gross profit margin shows that a business is performing well.

\[ Gross\;Profit\;Margin = \frac{Gross\;Profit}{Revenue} \]

Operating Profit Margin¶

Operating Profit Margin is the ratio between a business' operating profit and revenue, expressed as a percentage. A high operating profit margin shows that a business is performing well.

\[ Operating\;Profit\;Margin = \frac{Operating\;Profit}{Revenue} \]

Return on Capital Employed¶

Return on Capital Employed is the ratio between a business' operating profit and capital employed, expressed as a percentage. It shows how much of a return the business is getting on its investments. A high return on capital employed shows that a business is performing well.

\[ Return\;on\;Capital\;Employed = \frac{Operating\;Profit}{Capital\;Employed} \]

Where:

\(Capital\;Employed = Total\;Equity + Non\;Current\;Liabilities\)

Return on Shareholders' Funds¶

Return on Shareholders' Funds is the ratio between a business' profit after tax and total equity, expressed as a percentage.

\[ Return\;on\;Shareholders'\;Funds = \frac{Profit\;after\;tax}{Total\;Equity} \]

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