A helpful tool that determines the financial health of the organization by meaningful relationship between components of financial statements of the company is ratio analysis. There are liquidity ratios, solvency ratios, leverage ratios and efficiency ratios, which helps in determining the financial stability of the company.
A measure of profitability under ratio analysis, it determines the percentage of profit to the revenue of the company. It is determined by following formula:
In the year 7, profit margin is increased due to increase in other revenues and decrease in cost of goods sold.
In the year 6, other revenue is 0.3% and cost of goods sold is 69.5%, where as in the year 7, other revenue is increased by 0.2% and cost of goods sold is decreaased by 3.1%.