Return on Equity = Net Income/ Average ShareholderвЂ™s Equity The formula to calculate Return of Equity is as follows:

Similar to Return on Asset, Return on equity is a measure that helps us to know the effectiveness of equity in generating profits. Return on Asset = Net Income/Total Assets Return on Equity The formula to calculate Return on Assets is as follows: In other words, it determines the efficiency to generate earnings using its assets. Return on assets indicates how a business is profitable against its assets. Profit Margin = Income From Operations/Total Revenue Return on Assets The formula to calculate Profit Margin is as below: The profit margin ratio helps us to know the overall percentage of profit a business makes against its revenue. This includes Profit Margin, Return on Assets, Return on Equity, Dividend Payout Ratio, and PE(Price Earnings) Ratio. Profitability ratios are financial metrics that help us to know the ability to generate earnings. Now, let us understand the components of each in brief.

Ther are five types of ratios evaluated while performing Ratio Analysis: growth, profitability, operations, liquidity, and solvency ratios. You can use Ratio analysis to evaluate various aspects of a companyвЂ™s operating and financial performance like its efficiency, liquidity, profitability, and solvency, etc. Ratio Analysis is a type of Financial Statement Analysis used to obtain a rapid indication of a companyвЂ™s financial performance in key areas.

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