Profitability Ratios: Gross, Operating & Net Profit Margin Explained

Profitability ratios are financial metrics used by analysts and investors to measure and evaluate a company's ability to generate income (profit) relative to revenue, balance sheet assets, operating costs, and shareholders' equity over a specific period of time. Maximize your understanding of profitability with this in-depth guide to the 3 most important profitability ratios:

Net Profit Margin: Find out how this final profitability metric reveals how much net income is generated per dollar of revenue.

Operating Profit Margin: Discover how Earnings Before Interest and Taxes (EBIT) helps determine a company's operational efficiency and ability to cover financial obligations.

Gross Profit Margin: Learn how to calculate gross profit by subtracting the cost of goods sold from revenue and how this ratio indicates a company's efficiency in generating profit from sales.

We also break down Return on Equity (ROE) using the DuPont framework, showing how net profit margin, asset turnover, and financial leverage work together to drive shareholder returns.

Whether you're an investor, business owner, or finance student, this video will help you analyze profitability like a pro.

Chapters:
00:00 - Introduction
00:14 - Gross Profit Margin
00:47 - Operating Profit Margin
01:36 - Net Profit Margin
02:09 - ROE Levers

You can learn more about this topic at https://corporatefinanceinstitute.com...

Understanding profitability is just the first step. To see the full picture, you need to know Return on Equity, which shows how efficiently a company turns profit into shareholder returns. ROE is driven by profitability, efficiency, and financial leverage—the very concepts we covered here.

Watch    • Return on Equity (ROE) | 3 Levers Exp...   next to see how these factors work together.

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