Operating Ratio
Rate of Return on Capital Employed
Inventory Turnover Ratio
Gross margin/Sales Ratio
Answer is Right!
Answer is Wrong!
The correct answer is A. Operating Ratio.
Profitability ratios are a group of financial ratios that measure the profitability of a company. They are used to assess a company’s ability to generate profits from its operations. The most common profitability ratios are:
- Return on assets (ROA): This ratio measures how profitable a company is relative to its assets. It is calculated by dividing net income by total assets.
- Return on equity (ROE): This ratio measures how profitable a company is relative to its equity. It is calculated by dividing net income by shareholders’ equity.
- Return on capital employed (ROCE): This ratio measures how profitable a company is relative to the capital it has employed. It is calculated by dividing net income by capital employed.
- Gross margin/sales ratio: This ratio measures the percentage of sales that a company keeps as gross profit. It is calculated by dividing gross profit by sales.
- Operating margin/sales ratio: This ratio measures the percentage of sales that a company keeps as operating profit. It is calculated by dividing operating profit by sales.
- Net margin/sales ratio: This ratio measures the percentage of sales that a company keeps as net profit. It is calculated by dividing net profit by sales.
Operating ratio is not a profitability ratio. It is a measure of a company’s efficiency in managing its costs. It is calculated by dividing operating expenses by sales. A high operating ratio indicates that a company is not managing its costs efficiently.
I hope this helps! Let me know if you have any other questions.