What does profitability measure?

Profitability measures a company's ability to generate earnings compared to its expenses. This metric is crucial for understanding how effectively a company is operating by showing how much money it retains as profit after all costs are accounted for. High profitability indicates that a company can produce more revenues than it spends, which is a fundamental indicator of financial health and operational efficiency.

Evaluating profitability involves various ratios, such as the profit margin, return on assets, and return on equity, which provide insights into different aspects of earnings generation relative to the underlying costs. These measures help stakeholders assess the company's performance and sustainability over time, making option B the most accurate representation of what profitability quantifies.