Which ratio measures the profitability of a company relative to its sales?

The gross profit margin ratio is a key indicator of a company's profitability in relation to its sales. It reflects the portion of sales revenue that exceeds the cost of goods sold, illustrating how efficiently a company is producing and selling its products. This ratio is calculated by subtracting the cost of goods sold from total sales revenue and then dividing that figure by the total sales revenue. The resulting percentage indicates how much profit a company makes for each dollar of sales before accounting for other expenses such as operating costs, taxes, and interest.

A higher gross profit margin suggests that a company has a solid pricing strategy or effective cost control, indicating better profitability from its core activities. Hence, this ratio is particularly useful for analyzing the efficiency of production and sales operations in a company.

The other options focus on different aspects of financial performance and profitability. For instance, the net profit ratio evaluates overall profitability after all expenses are deducted, while the current yield on bonds pertains specifically to bond investment returns. Return on equity measures a company's ability to generate profit from its shareholders' equity, but it does not directly assess profitability relative to sales.