____ focus on how well the company is doing at making a profit.
Word bank: finacial leverage, profitibility ratios, liquility ratios, working capital
Profitability ratios focus on how well the company is doing at making a profit. By analyzing these ratios, investors and stakeholders can determine how efficiently a company is utilizing its resources to generate earnings. Some common profitability ratios include return on assets (ROA), return on equity (ROE), gross profit margin, and net profit margin.
Financial leverage also plays a role in determining profitability. This refers to the use of debt to finance operations and investments. While leveraging can amplify returns, it also increases the risk of losses. Companies with high financial leverage may be more vulnerable to economic downturns or fluctuations in interest rates.
Liquidity ratios, on the other hand, measure a company's ability to meet its short-term financial obligations. These ratios assess the company's ability to generate enough cash flow to cover its current liabilities. Common liquidity ratios include the current ratio and the quick ratio.
Working capital is another important aspect of financial performance. It represents the difference between a company's current assets and current liabilities. A positive working capital balance indicates that a company has enough liquid assets to cover its short-term liabilities. On the other hand, a negative working capital balance may signal financial distress.
Overall, analyzing profitability ratios, financial leverage, liquidity ratios, and working capital can provide valuable insights into a company's financial health and performance.