Module 1 - DB#5

What is the relevance or importance of profitability ratios?

How do internal and external stakeholders utilize profitability ratios?

Which profitability ratio is most important and why?

What is the relevance or importance of profitability ratios?
• Profitability ratios help to show how efficient an organization is operating.

How do internal and external stakeholders utilize profitability ratios?
• Internal stakeholders utilize profitability ratios to see if the company is operating efficiently or if they need to make changes.
• External stakeholders utilize profitability ratios to see if they want to invest in the company or if they should extend credit to the company and what the terms will be.

Which profitability ratio is most important and why?
• I think each profitability ratio is important for different reasons and it also depends on the organization. Each one measures the profitability or the performance of the organization, but based on different data. Depending on what the organization wants to see will determine which ratio is most important to them at that time.