Profitability Ratio: Definition, Formula, Analysis & Example


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What's the best explanation of a profitability ratio?

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1. Your company had sales of $1,000,000, resulting in a gross profit of $85,000. What is its gross margin?

2. Your cookware company generated net sales of $5,000,000 last year and had a net operating profit of $250,000. What was your operating margin?

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About This Quiz & Worksheet

This quiz and attached worksheet will help gauge your understanding of the ratio for calculating profitability. Topics you will need to know in order to pass the quiz include explaining profitability ratio and understanding returns on investments.

Quiz & Worksheet Goals

Use these assessment tools to measure your knowledge of:

  • What profitability ratios are used to determine
  • Calculating gross margin
  • Calculating operating margin
  • Determining return on assets

Skills practiced

This worksheet and quiz let you practice the following skills:

  • Reading comprehension - ensure that you draw the most important information from the related calculating profitability ratio lesson
  • Critical thinking - apply relevant concepts to examine information about what a profitability ratio measures in a different light
  • Problem solving - use acquired knowledge to solve profitability ratio practice problems
  • Knowledge application - use your knowledge to answer questions about calculating return on investment

Additional Learning

To learn more about the ratio for calculating profitability, review the lesson which covers the following objectives:

  • Defining profitability ratio
  • Identifying profitability ratios: gross profit margin, operating margin, return on assets, return on equity, return on sales
  • Defining profitability ratios and their corresponding principles