Which metric indicates a company's ability to increase profitability?

The net profit margin is a key metric that indicates a company's ability to increase profitability. It is calculated by dividing net profit by total revenue, which provides insight into how much of each dollar earned translates into profit after all expenses are accounted for. A higher net profit margin signifies efficient cost management and pricing strategies, indicating that the company is effectively controlling its operational costs relative to its revenue.

This metric is directly related to profitability, allowing businesses to assess their financial health and operational efficiency. By monitoring changes in net profit margin over time, a company can evaluate how well it is positioned to enhance profitability in response to various internal and external factors, such as market conditions, competition, and cost structures.

In contrast, other options focus on different aspects of financial performance. For instance, the current ratio assesses liquidity rather than profitability, while accounts receivable turnover reflects how efficiently a company collects its receivables. The debt to equity ratio evaluates financial leverage and risk but does not directly indicate profitability. Overall, net profit margin stands out as the most relevant metric for understanding profitability enhancement.