Which one of the following is not an example of profitability ratios?

Which one of the following is not an example of profitability ratios? Correct Answer OPERATING RATIO

Profitability Ratios: Profitability ratios are a class of financial metrics that are used to assess a business's ability to generate earnings relative to its revenue, operating costs, balance sheet assets, or shareholders' equity over time, using data from a specific point in time.

Types of Profitability Ratio:

 1. Return on Investment (ROI):

• ROI is the most common profitability ratio.
• There are several ways to determine ROI, but the most frequently used method is to divide net profit by total assets.
• Return on investment isn't necessarily the same as profit.
• ROI deals with the money you invest in the company and the return you realize on that money based on the net profit of the business. 

 2. Earning Per Share (EPS):

• This ratio measures profitability from the point of view of the ordinary shareholder.
• A high ratio represents the better the company is.
• Formula: Net Profit ÷ Total no of shares outstanding

3. Interest Coverage Ratio:

• The interest coverage ratio is a debt ratio and profitability ratio used to determine how easily a company can pay interest on its outstanding debt.
•  Lenders, investors, and creditors often use this formula to determine a company's riskiness relative to its current debt or for future borrowing.

Operating Ratio:

• The operating ratio is a Profit & Loss ratio.
• The operating ratio shows the efficiency of a company's management by comparing the total operating expense (OPEX) of a company to net sales.
• The operating ratio shows how efficient a company's management is at keeping costs low while generating revenue or sales.
• The smaller the ratio, the more efficient the company is at generating revenue vs. total expenses.

Therefore, the Operating ratio is not an example of profitability ratios.