Dr. Paul Borosky, DBA, MBA
Business Consultant & Author
Guide 28 of 34 · Financial Ratios
What Are Profitability Ratios? (Apple Example)
Profit from every angle. Seven ratios, one company.
A big profit number tells you almost nothing until you compare it to something: sales, assets, or the money invested. Profitability ratios do exactly that. Apple keeps about 27 cents of every sales dollar as profit and earns about 37 cents of operating profit on every dollar of assets. This guide shows all of them.
Last Updated: 10/27/2026 · Written by Dr. Paul Borosky, DBA, MBA
The Short Answer
What Are Profitability Ratios?
Textbook Definition
Profitability ratios measure a company’s ability to generate earnings relative to sales, assets, or capital. They include margin ratios (gross, operating, net) and return ratios (ROA, ROE, basic earning power, ROCE, ROIC).
In Plain English
Margin ratios ask: out of every sales dollar, how much is profit? Return ratios ask: out of every dollar the company owns or was given, how much profit comes back? You need both views.
Margin Ratios
Profit line ÷ Sales
Apple net margin, fiscal 2025: 26.9%
Return Ratios
Profit line ÷ Assets, Equity, or Capital
Apple ROA, fiscal 2025: 31.2%
Every profit line comes from the income statement. Assets and equity come from the balance sheet.
One Real Company
Apple’s Profitability Ratios, 2021 to 2025
Every margin rose over five years. Every return rose too. That is what durable profitability looks like.
| Ratio | 2025 | 2024 | 2023 | 2022 | 2021 |
|---|---|---|---|---|---|
| Gross profit margin | 46.9% | 46.2% | 44.1% | 43.3% | 41.8% |
| Operating profit margin | 32.0% | 31.5% | 29.8% | 30.3% | 29.8% |
| Net profit margin | 26.9% | 24.0% | 25.3% | 25.3% | 25.9% |
| Return on assets | 31.2% | 25.7% | 27.5% | 28.3% | 27.0% |
| Basic earning power | 37.0% | 33.8% | 32.4% | 33.9% | 31.0% |
| Return on capital employed | 68.7% | 65.3% | 55.1% | 60.1% | 48.3% |
| Return on invested capital | 65.1% | 57.2% | 56.3% | 58.6% | 50.3% |
| Return on equity | 152% | 165% | 156% | 197% | 150% |
Source: Apple Form 10-K filings, fiscal 2021 to 2025, as analyzed in the book.
The Method
How to Read Profitability Ratios in 5 Steps
Walk the margins top to bottom.
Gross, then operating, then net. Each step down shows what one layer of cost took. Apple drops 15 points from gross to operating, then 5 more to net.
Check the direction of each margin.
Rising margins mean costs are under control or pricing power is growing. Apple’s gross margin climbed from 41.8% to 46.9%.
Switch to returns.
ROA and basic earning power measure profit against assets. They show how productive the whole company is, not just each sale.
Use ROCE and ROIC for capital.
They measure profit against the long-term money invested. Apple’s run in the 50s and 60s, which is rare.
Question ROE before you trust it.
ROE divides by equity, and buybacks can shrink equity. Apple’s 152% earns only a C+ in the book for that reason.
Margin vs. Total Profit
Microsoft keeps more of each dollar: a 36% net margin to Apple’s 27%. Apple still earns more total profit, $112 billion to $102 billion, because it sells far more. Margin and total profit answer different questions. A strong company can lead on one and trail on the other. Margins for small businesses are covered in gross margin vs. net margin.
Compare It
Apple vs. Microsoft: Two Ways to Be Very Profitable
| Latest fiscal year | Apple | Microsoft |
|---|---|---|
| Gross margin | 47% | 69% |
| Operating margin | 32% | 46% |
| Net margin | 27% | 36% |
| Return on assets | 31% | 17% |
| Basic earning power | about 37% | about 21% |
| ROCE | about 69% | about 27% |
| ROIC | 50 to 65% | high 20s |
Microsoft’s fiscal year ends in June, Apple’s in September.
Microsoft’s software costs little to reproduce, so it wins every margin. Apple stays asset-light, so it wins every return. Read margins and returns together, or you will only see half the story.
Quick Reference
Which Profitability Ratio Answers Which Question?
- Gross margin: what is left after paying for the product? (Sales − COGS) ÷ Sales
- Operating margin: what is left after running the company? EBIT ÷ Sales
- Net margin: what is left after everything? Net income ÷ Sales
- Return on assets: how productive is everything it owns? Net income ÷ Total assets
- Basic earning power: same question, ignoring debt and taxes. EBIT ÷ Total assets
- ROCE: what does long-term capital earn? EBIT ÷ (Total assets − Current liabilities)
- ROIC: what does every invested dollar earn after tax? NOPAT ÷ (Debt + Equity)
- Return on equity: what do the owners earn on their stake? Net income ÷ Equity
Notice the pattern. The three margins share one bottom number: sales. The five returns each use a different bottom number. That is why returns can disagree with each other, and why ROE, with the smallest bottom number, can run wild.
Beginner Traps
What Do Beginners Get Wrong About Profitability Ratios?
- Judging a company on net margin alone.
- Comparing a hardware maker’s gross margin to a software company’s.
- Admiring a huge ROE without checking the equity behind it.
- Celebrating a margin jump that came from one-time cost cuts.
- Reading one year when a one-time tax charge hit the bottom line.
- Mixing up margin (per sales dollar) and return (per asset or capital dollar).
How the Book Grades Apple’s Profitability
From the Book
The Number That Survives
Profitability Ratios · Net Profit Margin
A Quarter of Every Dollar
Keeping better than a quarter of every sales dollar as pure profit, year after year, is remarkable for a company of Apple’s size.
Eight profitability ratios, each with five years of Apple numbers, Microsoft beside it, and a grade. It is all in the book.
Get the Book on Amazon →Your Business, Not Apple’s
Your margins tell the same story with smaller numbers. If you are pricing a product or a job, start with what contribution margin is. Building projections for a lender? Dr. Paul writes plans with full financial projections.
Beyond the Book
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Profitability Ratio Questions
What are the main profitability ratios?
Which profitability ratio is most important?
What is the difference between a margin and a return?
Why does Microsoft have higher margins but lower returns than Apple?
Keep Going
Related Guides
Every formula sits in the financial ratios cheat sheet.
Written by Dr. Paul Borosky, DBA, MBA, business consultant, author, and adjunct finance instructor with an MBA focused in finance.
This page is for general educational purposes only. It is not investment, financial, tax, accounting, or legal advice, and nothing here is a recommendation to buy or sell any security. Apple and Microsoft figures come from their public filings as analyzed in the book. Apple and Microsoft are trademarks of their respective owners, and this page is not affiliated with or endorsed by either company.