When hunting for UK stocks to buy, profitability should be one of the first areas of research. Whether looking for growth opportunities or dividend shares, profitability is a critical measure of a stock’s long-term potential.
To measure profitability, investors typically look at a few key return-focused metrics. The most common are return on equity (ROE), return on capital employed (ROCE) and return on assets (ROA). These measures are most effective when comparing stocks in the same industry, as this has a notable effect on their relevance.
In addition to measuring return-based metrics, it’s important to look at margins. These evaluate how well a business is converting revenue into earnings. Popular ones include the gross margin, operating margin and net margin. Each stage reveals where revenues are being depleted, with net margin being the bottom line.
Finally, the EBITDA margin’s a good measure of how well a business converts revenue to cash, without the obscurity of unavoidable expenses.
To show how this works in practice, I’ve applied the analysis to two of the best known UK stocks on the FTSE 100.
AstraZeneca
AstraZeneca (LSE: AZN) stands out as exceptionally profitable when evaluated using the metrics discussed above. The pharmaceutical company demonstrates a net profit margin of 16.2%, significantly higher than most FTSE peers and well above the sector median.
More impressively, its return on equity (ROE) is around 22%, placing it among the highest in the index. This exceptional ROE reflects the company’s efficiency at converting each pound of shareholder equity into substantial profit.
The company also maintains a strong operating margin of 21.8%, indicating robust pricing power and cost control in its core pharmaceutical business. For investors seeking sustainable growth, it looks a reasonable stock to consider.
Still, it isn’t without risk. The impending pharmaceutical patent cliff on its key drug Farxiga could drastically alter future profits. The patent expires next year, putting at risk a potential $7.7bn in revenue. Several other drugs also face expiration before 2030, including Lynparza, so the company must continue to innovate to remain relevant.
HSBC
When looking at the finance sector, we need to apply slightly different metrics. When it comes to banking, HSBC‘s (LSE: HSBA) highly profitable when measured by return on tangible equity (RoTE).
The bank achieved an annualised RoTE of 17.6% year-to-date in 2025, with some quarters reaching 16.4%. While its traditional ROE stands at around 13%, which is respectable for banking, the RoTE metric is more relevant for financial institutions. This is because it excludes goodwill and intangible assets that distort profitability analysis.
The bank’s strong profitability stems from diverse revenue streams, particularly wealth management, where it demonstrated significant growth and high margins. But while it’s certainly a compelling stock to think about in the UK banking sector, it isn’t risk-free.
Earlier this year, HSBC disbanded its dedicated geopolitical risk team, absorbing this function into generalist departments as a cost-cutting measure. This decision has drawn scrutiny, as research from the Bank for International Settlements (BIS) warns that banks underestimating geopolitical risks face 30% higher earnings volatility during crises.
With competitors like JPMorgan Chase using AI to expand its geopolitical awareness, HSBC’s at risk of falling behind.
Still, with impressive metrics backed by decades of exceptional performance, it remains one of the most profitable UK stocks on the FTSE 100.
