What is Jaws ratio?
The Jaws ratio is a measure in finance used to demonstrate the extent to which a trading entity's income growth rate exceeds its expenses growth rate. Strictly speaking, the ratio is not expressed in usual ratio format, but rather as a percentage.
Key takeaways
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The Jaws ratio measures how much a company's income growth rate exceeds its expense growth rate, expressed as a percentage.
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It is calculated by subtracting the expense growth rate from the income growth rate of a trading entity.
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A larger positive Jaws ratio indicates increasing profitability, while a negative ratio signals eroding profitability and cause for concern.
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Standard Bank Namibia Holdings experienced a negative Jaws ratio of 2% in early 2017, demonstrating real-world application of the metric.
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The Jaws ratio is a useful measuring tool for any business and is often made public by companies.
Where have you heard about Jaws ratio?
Jaws ratio is a useful measuring tool for any business and is often made public. For example, in early 2017, it was reported that the Standard Bank Namibia (SBN) Holdings group experienced a negative Jaws ratio of 2%.
What you need to know about Jaws ratio.
A larger Jaws ratio (or percentage) would be good news for a trading entity, showing signs that more income is being generated and that the entity's profitability and profitability growth rate is increasing. However, the Jaws ratio may sometimes be expressed as a negative percentage. In this case, it would be a sign of eroding profitability and would therefore be cause for concern for the owners/management of a trading entity. The jaws ratio is calculated by subtracting the expense growth rate from the income growth rate.