Ratio as a Measure of Return

Introduction:
Ratio analysis is a powerful tool in evaluating the financial performance and profitability of a company. It involves comparing different financial figures to gain insights into the company's operational efficiency, liquidity, solvency, and profitability. Among various ratios, there are specific ratios that primarily measure the return on investment or profitability of a company.

Return on Investment:
Return on investment (ROI) is a key ratio that measures the profitability of an investment. It assesses the efficiency and effectiveness of a company in generating profits from its invested capital. ROI is calculated by dividing the net profit by the total capital invested and is usually expressed as a percentage.

Return on Equity:
Return on equity (ROE) is a ratio that measures the profitability of a company in relation to its shareholders' equity. It provides insights into how effectively a company is utilizing its shareholders' investments to generate profits. ROE is calculated by dividing the net income by the average shareholders' equity and is expressed as a percentage.

Return on Assets:
Return on assets (ROA) is a ratio that measures the profitability of a company in relation to its total assets. It evaluates the efficiency of asset utilization in generating profits. ROA is calculated by dividing the net income by the average total assets and is expressed as a percentage.

Return on Capital Employed:
Return on capital employed (ROCE) is a ratio that measures the profitability of a company in relation to the total capital employed, including both equity and debt. It assesses the efficiency of a company in generating profits from the total capital invested. ROCE is calculated by dividing the operating profit by the capital employed and is expressed as a percentage.

Conclusion:
These ratios, including return on investment (ROI), return on equity (ROE), return on assets (ROA), and return on capital employed (ROCE), are primarily measures of return or profitability. They provide valuable insights into the financial performance of a company and help investors, analysts, and stakeholders make informed decisions. By analyzing these ratios, one can assess the efficiency, profitability, and sustainability of a company's operations.