What do profitability ratios measure?

Profitability ratios are financial metrics used to assess a company's ability to generate profit in relation to its resources, such as sales, assets, and equity. These ratios provide insights into how efficiently a company is utilizing its resources to produce earnings.

By examining ratios like the net profit margin, return on assets, and return on equity, stakeholders can evaluate the effectiveness of management in turning revenue into profit. A higher profitability ratio indicates a more efficient use of resources and potentially greater financial health. This means that option A accurately describes what profitability ratios measure.

The other choices touch on different aspects of financial health but do not directly relate to the concept of profitability. For example, liquidity pertains to a company's ability to meet short-term obligations, while market share reflects a company's competitive position in its industry. Hence, they do not address the specific focus of profitability ratios.