Why are profitability ratios important?

Answer by  Key9 (98)

Your profitiability ratio shows how profitable your business is over a period of time. These ratios are important if you want to compare your business to competitors, or check its performance over time. They're also important information for investors.

Answer by  therealnapster (107)

Profitability rations are important because they provide information about the overall health of your company. Using these ratios can help show efficiency, performance, and profitability to all investors of the company.

Answer by  cbdave (124)

In general, profitability ratios let you know whether a business (or product line, or anything accounted for separately) is a good use of time, effort, and money (but mostly money). For example, you can see how well you are performing compared to others in your industry.

Answer by  tamarawilhite (17883)

You cannot expect the value of something to go up, creating capital gains. And its value rising may be a sign of inflation, not actual profit. Profitability ratios show how much cash flow an investment creates based on its current value. The items with the smallest profitability ratio (most profit per dollar invested) make the most money for you now.