The Efficiency of Financial Ratios Analysis to Evaluate Company’s Profitability

Abstract

The main purpose of the business unit is to make money. The profitability analysis is to understand the current operating performance and efficiency of the commercial company. It should be appropriately pointed out that the net income figure alone is not very helpful in determining the efficiency and performance of the enterprise unless it is related to other figures, such as sales, cost of goods sold, operating expenses, investment capital, etc. Therefore, calculating the profit rate can inspire the final result and the comparison of the company. This is the only criterion for the company to pay attention to the overall efficiency. This paper mainly focused on reviewing and evaluating current articles that have been conducted on analyzing companies’ performance regarding profitability. Thus, this review discovered that profitability is the most important measure to evaluate companies’ performance. Hence, other financial indicators such as liquidity can be used for further article reviews to boost the effectiveness of companies’ performance.