Profitability ratios are financial ratios that are used by the investors for evaluating a company’s ability for generating income profit in relation to its revenue, operating costs, balance sheet assets, and equity shareholders during a particular period of time.

These ratios tell the investors how well a company is using its assets for generating profit and value to its shareholders.

A higher ratio is preferred as it usually means that the business is performing well by generating profits, and cash flow.

The ratios help in comparing similar companies of the same sector.