Profitability ratios - indicate combined use of both assets and debt. Net margin is sometimes too broad, and can mask underlying problems. These reflect market perceptions of company performance and market expectations of the future. See T3.10 V. for definitions of these ratios. Consider a very operationally efficient company with no debt and an average operationally efficient company with moderate to significant debt.
Inflation can have a distortionary effect on ratios.
As an example, consider the effect of inflation on total asset turnover for a capital intensive company. Timing problems . Most ratios are calculated using the year-end financial statements. Similarly distortions occur with accounts payable and inventory. Companies with seasonal operations are particularly prone to this problem.