Lesson: Profitability Ratios

In this lesson, Nick Palazzolo, CPA, dives into the analysis of a company's financial performance by exploring various profitability ratios. He starts by clarifying the differences between gross margin and profit margin, detailing how each is calculated and what they reveal about a company's finances. Nick places special emphasis on the understanding of return on equity (ROE) and introduces the audience to the concept of return on with helpful general rules for remembering ratio formulas. The lesson includes a walk-through of the DuPont ROE Formula, an invaluable tool for dissecting the components of ROE, and detailed problem-solving examples that apply this knowledge. Finally, Nick expands on further ratios such as growth rate and return on sales, and examines the impact of retained earnings on a company's growth potential, rounding off with a practical example of calculating a company's expected growth rate.