Types of Profitability Ratios

What are the two types of profitability ratios?

The two types of profitability ratios are margin ratios and return ratios. Margin ratios represent the firm's ability to translate sales dollars into profits. Return ratios measure the overall ability of the firm to generate shareholder wealth.

Margin ratios include the following:

• Gross Profit Margin
• Operating Profit Margin
• Net Profit Margin
• Cash Flow Margin

Returns ratios include the following:

• Return on Assets (Investments)
• Return on Equity
• Cash Return on Assets

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