Both business leaders and investors use financial ratios to assess a company's performance. They can help determine whether a company is undervalued or overvalued and whether its shares will likely experience long-term price appreciation. There are many different financial ratios , each measuring a different aspect of a company's finances. Both business owners and average investors use these to evaluate a company's profitability, solvency, efficiency, coverage, market value and more. Profit Margin Profit margin, also known as the return on sales ratio (ROS), is one of the most important financial ratios. It measures how much revenue a company retains after deducting all business expenses. Gross profit margin is the simplest of all profitability metrics and is calculated by subtracting the cost of goods sold (COGS) from total revenue. This figure excludes taxes, debt, operating costs, and one-time expenditures such as equipment purchases. In compa...