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Profitability ratios are distorted by inflation because profits are stated in current dollars, while assets and equity are stated in historical dollars. The given statement is true.
Using information from a specific point in time, profitability ratios are a class of financial metrics that are used to evaluate a company's capacity to generate profits in relation to its revenue, operating costs, balance sheet assets, or shareholders' equity over time.
The profitability ratio compares an organization's ability to generate profits over time to its operating expenses, revenue, and shareholders' equity. The ratio should be as high as possible because it indicates that the company is very capable of generating profits on a consistent basis.
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