GUIDE深度 · Deep dive
Profitability and Turnover Ratios
ROE = net income/equity; gross margin = (revenue-cost)/revenue; net margin = net income/revenue; asset turnover = revenue/assets. Profitability uses the income statement; turnover measures asset efficiency.
Profitability
ROE measures shareholder return.
Gross margin is product-level; net margin is company-level.
Turnover
Asset turnover = revenue/assets.
Higher means more efficient asset use.
Use average assets for turnover when the balance sheet changed during the year, and state which denominator you used.
FAQ
Is high ROE always good?
Not always; high debt can inflate ROE.
Gross vs net margin?
Gross margin subtracts cost only; net margin also subtracts expenses/tax.