Correct Answer:
C. Net profit margin
Profitability ratios are financial metrics used to assess a company's ability to generate earnings relative to its revenue, operating costs, balance sheet assets, or shareholders' equity. They indicate how efficiently a company is using its resources to generate profit.
- The correct answer is Net profit margin. This ratio measures the percentage of revenue left after all expenses, including taxes and interest, have been deducted from sales. It directly indicates how much profit a company makes for every dollar of sales.
- Current ratio (A) and Quick ratio (D) are liquidity ratios, measuring a company's ability to meet its short-term obligations.
- Debt ratio (B) is a solvency ratio, indicating the proportion of a company's assets financed by debt.
Thus, net profit margin is the direct measure of a company's overall profitability.