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Assessment of Company Profitability - Briefing Paper

The Chartered Institute of Public Finance & Accountancy has stated that:

"Company profitability is often assessed by using ratios. Without using ratios it is only possible to see the actual level of profit. With ratios it is possible to see how that profit relates to other financial variables in the organisation and therefore to come to conclusions about the level of performance, areas of high and low performance, changes in performance over time and comparisons of performance between different organisations."

The most commonly used profitability ratios are:

  • Return on Capital Employed (ROCE) (%)
  • Return on Equity (ROE) (%)
  • Net Profit Margin (%)
  • Gross Profit Margin (%)

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