5.1 Profitability ratios

Profitability ratios aim to evaluate whether the profitability of the business organisation is sufficient to justify the amount of funds invested in the business, compensates the investors for the risk they are taking by investing their money and contributes in evaluating if a better return could be earned by investing funds in other investment options of a similar risk profile. These ratios also help managers to monitor the company’s performance and help employees know if the company can continue to pay them.