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**4. Profitability Ratios:**Profitability ratios measure the profitability of a concern generally. They are calculated either in relation to sales or in relation to investment.

ü Return on Capital Employed or Return on Investment (ROI): This ratio reveals the earning capacity of the capital employed in the business.

=PBIT /Capital Employed

ü Return on Proprietors Fund / Earning Ratio: Earn on Net Worth

=Net Profit (After tax)/Proprietors Fund

ü Return on Ordinary shareholders Equity or Return on Equity Capital: It expresses the return earned by the equity shareholders on their investment.

=Net Profit after tax and Dividend / Proprietors fund or Paid up equity Capital

ü Price Earning Ratio: It expresses the relationship between marketprice of share on a company and the earnings per share of that company.

=MPS (Market Price per Share) / EPS

ü Earning Price Ratio/ Earning Yield:

= EPS / MPS

ü EPS= Net Profit (After tax and Interest) / No. Of Outstanding Shares.

ü Dividend Yield ratio: It expresses the relationship between dividend earned per share to earnings per share.

= Dividend per share (DPS) / Market value per share

ü Dividend pay-out ratio: It is the ratio of dividend per share to earning per share.

= DPS / EPS

DPS: It is the amount of the dividend payable to the holder of one equity share. =Dividend paid to ordinary shareholders / No. of ordinary shares

C.G.S=Sales- G.P

G.P= Sales – C.G.S

G.P.Ratio =G.P/Net sales*100

Net Sales= Gross Sales – Return inward- Cash discount allowed

Net profit ratio=Net Profit/ Net Sales*100

Operating Profit ratio=O.P/Net Sales*100

Interest Coverage Ratio= Net Profit (Before Tax & Interest) / Fixed Interest Classes

**Return on Investment (ROI):**It reveals the earning capacity of the capital employed in the business. It is calculated as,

EBIT/Capital employed.

The return on capital employed should be more than the cost of capital employed.

Capital employed =Equity Capital + Preference sharecapital + Reserves + Longterm loans and Debentures - Fictitious Assets – Non Operating Assets