The correct answer is: C. Both A and B.
Overall profitability ratios are based on both investments and sales. They measure how efficiently a company uses its resources to generate profit. Some common overall profitability ratios include return on assets (ROA), return on equity (ROE), and return on investment (ROI).
ROA measures how much profit a company generates for each dollar of assets it owns. ROE measures how much profit a company generates for each dollar of equity it owns. ROI measures how much profit a company generates for each dollar of investment it makes.
All of these ratios are important for investors to consider when evaluating a company’s financial performance. A high ROA, ROE, or ROI indicates that a company is using its resources efficiently and generating a good return on investment.
Here is a brief explanation of each option:
- A. Investments. Investments are the assets that a company owns, such as cash, property, plant, and equipment. The return on investment (ROI) ratio measures how much profit a company generates for each dollar of investment it makes.
- B. Sales. Sales are the revenue that a company generates from selling its products or services. The return on sales (ROS) ratio measures how much profit a company generates for each dollar of sales.
- C. Both A and B. Overall profitability ratios are based on both investments and sales. They measure how efficiently a company uses its resources to generate profit. Some common overall profitability ratios include return on assets (ROA), return on equity (ROE), and return on investment (ROI).