Which financial measure is used to assess a company's profitability relative to its total equity?

The measure used to assess a company's profitability relative to its total equity is the return on equity (ROE). This financial metric calculates how effectively a company is using its shareholders' equity to generate profit. It is expressed as a percentage and is derived by dividing net income by total equity. A higher return on equity indicates a more efficient use of equity funds, reflecting the company's ability to convert equity investments into profits.

While profit margin does examine profitability, it specifically measures the percentage of revenue that represents profit and does not take total equity into account. The current ratio assesses a company's ability to cover its short-term liabilities with its short-term assets, which is more focused on liquidity than profitability. The debt ratio, on the other hand, evaluates a company's financial leverage by comparing total debt to total assets, but again, it does not provide insight into profitability related to equity. Therefore, return on equity is the best choice for evaluating profitability in relation to total equity.