Which financial measure is used to evaluate a company’s profitability?

Return on investment (ROI) is a key financial measure used to evaluate a company's profitability. It specifically assesses the efficiency of an investment by calculating the return relative to the investment's cost. A higher ROI indicates that the investment has generated a significant profit compared to its cost, demonstrating how well a company is utilizing its resources to generate earnings.

ROI is pivotal for business owners and investors since it provides insight into how effectively financial resources are being employed. By comparing the profitability of different investments, businesses can make informed decisions regarding where to allocate funds for the best possible returns.

Other financial measures, while important for overall financial health, serve different purposes. Revenue growth focuses on increasing sales over time rather than directly measuring profitability. Liquidity ratios assess a company's ability to meet short-term obligations, and the debt-to-equity ratio evaluates leverage and financial structure rather than straightforward profitability. Therefore, ROI is the most direct measure of a company's profitability among these choices.