Profitability Ratios Profitability ratios reflect the net result of all the firm's financing v policies and operating decisions. The profitability ratios include the: (1) Operating margin, (2) Profit margin, (3) Return on total assets (ROA), (4) Basic earning power (BEP), (5) Return on invested capital (ROIC), and (6) Return on common equity (ROE). The operating margin indicates what percentage of sales remain after -Select- are accounted for. It is a measure of the firm's operating efficiency. Its equation is: EBIT Operating margin Sales V represents. It measures the firm's combined impact of operating efficiency and -Select on the firm's The profit margin indicates what percentage of sales -Select- profitability. Its equation is: Profit margin Net income Sales The return on total assets (ROA) measures the return on all the firm's assets -Select- vinterest and taxes. Its equation is: Return on total assets (ROA) = Net income Total assets A low ROA can result from a firm's decision to use more debt because high interest expenses will cause net income to (-Select- V . The basic earning power (BEP) ratio shows the earning power of the firm's assets -Select- taxes and debt and is useful for comparing firms with different debt ratios and tax rates. Its equation is: EBIT Basic eaming power (BEP) Total assets The return on invested capital (ROIC) shows the after-tax operating return on total invested capital, which is equal to the sum of debt and equity (assuming no preferred stock is issued). Its equation is: Return on invested capital (ROIC) = EBIT(1-T) Total invested capital The return on common equity (ROE) measures the return on -Select- investment. Its equation is: Return on common equity (ROE) Net income Common equity