by AAII Staff
Profitability ratios measure a company’s ability to generate earnings relative to its expenses and other costs. For most company profitability ratios, larger values relative to its industry or to the same ratio from a previous period are better.
Two well-known profitability ratios are return on assets (ROA) and return on equity (ROE). Both gauge a company’s ability to generate earnings from their investments, but they don’t exactly represent the same thing.
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