The profitability ratio analysis is a set of financial analysis metrics that are used to assess the financial capability of a business and to measure the ability of the business to generate earnings other than the expenses and the relevant costs incurred during a specific period of time. The profitability ratio analysis shows the company’s overall efficiency and performance.
On the other hand, the profitability analysis is one of the components of the enterprise resource planning (ERP) that is used to allow the administrators to determine the profitability of a proposal and increase or optimize the profitability of an existing project.
The profitability ratio is divided into two types: margins and returns.
The margin ratio represents the company’s ability to translate the sales dollars into profits at various cost levels.
The return ratio shows the ability of the company to measure the overall efficiency in generating returns.