Profit Margin Ratio - Profitability Calculator

Profitability ratios are used to assess the business ability to generate earnings relative to its assets, equity and sales.

This app will help you to assess the health of your business by using the Profitability Ratios:
- Profit Margin
- Return on Equity (ROE)
- Return on Assets (ROA)

What is Profit Margin?

Profit Margin are expressed as a percentage. A business can measure the percentage of profit from its business operations after deducting its operating expenses, interest expense, taxes and dividends from revenues (Indicates, how well the business converts its sales into profits).

How do I use this: This is Income statement component, simply key in the numbers stated against Sales and Net Income to get the desired result.

Formula: Profit Margin = Net Income/Net Sales

Example: A 10% profit margin means the business has a net income of $0.10 for each dollar it generates.

What is ROE?

Return on Equity (ROE) are expressed as a percentage. A business can get to measure, what amount of profit, it made out its investment (Equity).

How do I use this: This is a balance sheet and income statement component, simply key in the numbers stated against Net Income from Income Statement and average of owner’s equity from Balance sheet to get the desired result.

Formula: Return on Equity (ROE) = Net Income/Average Total Equity

Working Note:
Average Total Owner Equity = (Beginning Equity + Ending Equity)/2

Example: A business with equity value of $100 million dollars, made $3 million in profit, it would be earning 3% on its equity ($3 ÷ $100 = .03, or 3%).

What is ROA?

Return on Assets (ROA) are expressed as a percentage. A business can get to measure, what amount of after-tax profit it generated for each $1 in assets.

How do I use this: This is a balance sheet and income statement component, simply key in the numbers stated against Total Assets from Balance sheet and Net Income from Income Statement to get the desired result.

Formula: Return on Assets (ROA) = Net Income/Total Assets

Example: A 10% ROA means that, the business earned $0.10 for each $1 in assets.