Key Financial Ratios for Measuring Company Profitability

Explanation:

Four-Firm Concentration Ratio

One key financial ratio that could help Bob, the CFO, measure his company's profitability is the four-firm concentration ratio. This ratio measures the combined market share of the largest four firms in the industry. It helps determine the level of competition in the market and can indicate a monopolistic or competitive environment.

Herfindahl-Hirschman Index (HHI)

Another financial ratio that can be useful is the Herfindahl-Hirschman Index (HHI). This index calculates market concentration by squaring the market shares of all firms in the market and summing the total. A higher HHI score indicates higher market concentration and potentially less competition.

Return on Investment (ROI) Ratio

Lastly, Bob can also consider the return on investment (ROI) ratio. This ratio shows the profitability of the company by comparing the company's net profit to the amount invested. A higher ROI indicates better profitability.

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