Which of the following ratios would best indicate a company’s profitability?

The Price-to-Earnings (P/E) ratio is a key indicator of a company’s profitability as it measures the company's current share price relative to its earnings per share. This ratio indicates how much investors are willing to pay for each dollar of earnings, making it a vital metric for assessing the market's expectations of a company's profitability.

When analyzing a company's performance, the P/E ratio provides insights into how the market values its earnings potential. A higher P/E ratio could suggest that the market expects future growth and thus reflects strong profitability or anticipated profitability. Conversely, a low P/E ratio might indicate that the market has lower expectations for growth or that the company's earnings are not as strong.

In comparison, the other ratios listed serve different purposes. The debt-to-equity ratio focuses on a company’s financial leverage and stability rather than its profitability. The liquidity ratio assesses a company’s ability to meet short-term obligations and doesn’t directly relate to profitability. Return on investment (ROI) is significant in measuring the efficiency of an investment, but it does not directly represent profitability as a function relative to the company's market valuation.

Choosing the P/E ratio to determine profitability aligns with the objectives of investors and analysts who look to gauge the company's financial health and earning capabilities in the