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Definition

<p style="text-align: justify;">The ability of a <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">company</span> to generate <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">profits</span> in relation to its <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">turnover</span>, operating costs, <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">capital employed</span> or shareholders' equity. Each one of these <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">ratios</span> highlights an aspect of the company's profitability. <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">Profit</span> as a percentage of turnover or <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">revenue</span> shows the company's margin on the products which it sells. <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">Return on capital employed</span> shows how efficiently the company is using the <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">assets</span> which it has to produce profits and return on shareholders funds shows the kind of <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">returns</span> that the company's <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">shareholders</span> are getting. When a company is very profitable, it tends to attract <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">competition</span>. A company's profitability is not as important to <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">investors</span> as the consistency of its profit growth over a long period of time.</p>