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Profitability is the ability of any business to produce “earnings.” The Financial Statement, which tells us whether a company is making profits or not is the Income Statement (or Profit and Loss Statement). In order to understand if a business is making profits we have to look at its Net Profit Line also called “bottom line” since we always find it as last item shown on this statement. The main profitability ratios used in financial accounting are: • Gross profit margin = Gross Profit/Sales • Operating profit margin = Operating Profit/Sales • Return on capital employed (ROCE) = Operating Profit/Capital Employed • Return on equity (ROE) = Net Income/Shareholder Equity