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## What is profitability ratio?

In terms of a company’s performance, profitability ratio is defined as the capacity of any company to earn a profit, which is calculated after deducting all the expenses.

### Some terms related to profitability ratio

Here, we will discuss some terms which are used for determining profitability ratio.

• Gross Margin: Gross Margin determines the profitability of goods and services by calculating its cost of raw materials which were used to produce the product.
• Operating Margin:It is used for determining the cost of goods and services, which are unrelated to the direct production. Examples are overhead costs and administrative expenses.
• Return on assets:The effectiveness of a company to produce income from its assets is known as return on assets.

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