How are profitability ratios used by different stakeholders? List one profitability ratio
Profitability ratios are used by creditors to evaluate a company's ability to make required principal and interest payments. Stockholders use profitability ratios to predict related increases in stock prices and/or dividends paid to stockholders. Managers are also concerned with profitability ratios as they are often related to performance evaluations and tangible rewards from bonus payments and other incentive compensation plans.
Profitability ratios include: (pick one)
· Return on assets
· Return on sales
· Asset turnover ratio
· Return on common stockholders' equity
· Earnings per share
· Price earnings (P/E) ratio
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