## Free Cash Flow-to-Sales: A Useful Way to Measure Profitability

Read how to use the free cash flow-to-sales ratio to analyze a company’s profitability.

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# Profitability

## Free Cash Flow-to-Sales: A Useful Way to Measure Profitability

## Net Margin: a Measure of Accounting Profitability

## DuPont Analysis: Dissecting Return on Equity

## Return on Equity (ROE): A Measure of Company Profitability

Read how to use the free cash flow-to-sales ratio to analyze a company’s profitability.

Net margin, also called net profit margin, is a measure of a company’s accounting profitability, i.e. profits reported on the income statement. Net margin compares a company’s net earnings, or net income, to its revenues or sales. How to Calculate Net Margin To calculate a company’s net margin, divide net earnings by sales. For example, Microsoft reported 2021 net earnings of $61.3…

DuPont analysis describes a process which breaks down a company’s return on equity (ROE) into individual components. DuPont analysis is especially useful to assess the underlying reasons for changes in a company’s ROE over time, and to compare these changes to competitors. Note that while this blog post describes three-stage DuPont analysis, five-stage DuPont analysis exists…

Return on equity (ROE) is a measure of a company’s profitability, and one of Warren Buffett’s key criteria when looking for strong companies to invest in. ROE shows us how much money a company can generate with the money invested by its shareholders, i.e. shareholders’ equity. Since shareholders’ equity consists in part of retained earnings, which is the…