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Profitability analysis measures the ability to generate income. Common measures used are
- profit margin: sales divided by net income,
- total assets turnover: ratio of net sales to total assets,
- return on assets: net income divided by total assets,
- return on equity: net income divided by either shareholders' total equity or common stock only,
- earnings per share of common stock,
- dividends per share of common stock.
In addition, investors also use price-earnings ratio, and dividend yield. All these ratios are most useful to those interest in the future ability to prosper, that is the shareholders and other investors, as well as management.
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