General profitability ratios are on the basis of

The correct answer is: C. Both A and B

General profitability ratios are calculated by dividing a company’s net income by one of two factors:

• Investments: This includes the company’s assets, such as its property, plant, and equipment.
• Sales: This includes the company’s revenue from selling its products or services.

There are many different types of profitability ratios, but they all measure a company’s ability to generate profit. Some common profitability ratios include:

• Return on assets (ROA): This ratio measures how much profit a company generates for each dollar of assets it owns.
• Return on equity (ROE): This ratio measures how much profit a company generates for each dollar of equity it owns.
• Return on sales (ROS): This ratio measures how much profit a company generates for each dollar of sales it makes.

Profitability ratios are important because they can help investors and analysts assess a company’s financial health. A high profitability ratio indicates that a company is efficient at generating profit, while a low profitability ratio indicates that a company may be struggling to make a profit.

Here is a brief explanation of each option:

• A. Investments: This includes the company’s assets, such as its property, plant, and equipment. Investments are important because they can help a company generate profit. For example, a company may invest in new equipment to improve its production efficiency.
• B. Sales: This includes the company’s revenue from selling its products or services. Sales are important because they are the main source of a company’s income. A company needs to generate enough sales to cover its costs and make a profit.
• C. Both A and B: General profitability ratios are calculated by dividing a company’s net income by one of two factors: investments or sales. This means that profitability ratios take into account both a company’s assets and its sales.
• D. None of the above: This option is incorrect because general profitability ratios are based on both investments and sales.