The operating margin ratio uses operating income and revenue to determine the profit a company is getting from its operations. This ratio, along with net profit margin, can give investors a good visibility on the profitability of a company as a whole. The operating margin ratio is calculated by dividing net operating income by total revenue.
The return on equity ratio is another way to gauge profitability. It measures how well a company generates profit using money that’s been invested in it (shareholder equity). It’s calculated by dividing net profit by total equity.
However, the best method is usually ROCE. This allows the analyst to know “how efficiently are they utilising their capital?”. ROE can be artificially inflated by taking on more debt
