Which of the following is a profitability ratio?

• A. Debt to Equity Ratio
• B. Quick Ratio
• C. Current Ratio
• D. Return on Equity (ROE)

Answer: (D)

Verified step by step guidance

1. Understand the concept of profitability ratios: Profitability ratios measure a company's ability to generate profit relative to its revenue, assets, equity, or other financial metrics. They are key indicators of financial performance.
2. Review the given options: Debt to Equity Ratio, Quick Ratio, and Current Ratio are not profitability ratios. Debt to Equity Ratio is a leverage ratio, Quick Ratio is a liquidity ratio, and Current Ratio is also a liquidity ratio.
3. Identify the correct answer: Return on Equity (ROE) is a profitability ratio. It measures the ability of a company to generate profit from its shareholders' equity.
4. Understand the formula for ROE: ROE is calculated as \( \text{ROE} = \frac{\text{Net Income}}{\text{Shareholders' Equity}} \). This formula shows how effectively the company is using its equity to generate profit.
5. Apply the concept: When analyzing financial statements, use ROE to assess the company's profitability and compare it with industry benchmarks or competitors.