What do profitability ratios measure?

Profitability ratios are key financial metrics that assess a company's ability to generate profit in relation to its revenue, assets, or equity. These ratios provide valuable insights into how effectively a company is utilizing its resources to achieve profitability. For instance, common profitability ratios include the net profit margin, return on assets, and return on equity. Each of these ratios illustrates how much profit a company is making in relation to its sales, total assets, or shareholders' equity.

Understanding these ratios is crucial for stakeholders such as investors, analysts, and management, as they offer a clear picture of the company's financial health and operational efficiency in terms of profitability. In contrast, the other options do not provide a direct assessment of profitability. Absolute revenue growth focuses solely on sales figures without capturing the relationship to costs or profits, market share assesses competitive standing rather than profitability, and supply chain efficiency relates to operational performance rather than financial returns. Thus, the correct choice accurately represents the purpose of profitability ratios.