Profitability Measures Tested As Factors

Each metric offers unique insights, but has its limitations in fully representing profitability.

Table with 6 columns and 9 rows.
MetricAcronymCategoryScaled byHelpful in assessingMisses on
Gross marginsGMMarginsRevenueCost structureDifferentiated business models
Operating marginsOMMarginsRevenueCost structureDifferentiated business models
Net marginsNMMarginsRevenueCost structureDifferentiated business models
Free cash flow marginsFCFMMarginsRevenueCost structureDifferentiated business models
Gross profits to assetsGPTAProfits-to-assetsAssetsCost structure and asset efficiencyAsset light businesses
Operating profits to assetsOPTAProfits-to-assetsAssetsCost structure and asset efficiencyAsset light businesses
Net profits to assetsNPTAProfits-to-assetsAssetsCost structure and asset efficiencyAsset light businesses
Return on equityROEReturn-onEquityEquity utilization efficiencyCan be inflated by leverage
Return on invested capitalROICReturn-onInvested CapitalTrue economic performanceNon-operating assets
Gross, operating, and net margins are calculated using income statement, Return on Equity, Return on Invested Capital, Gross, operating, and net profits-to-assets using income statement and balance sheet, Free cash flow margins using income and cash flow statements.
Table: Capitalmind