Profitability is the ability of the firm or company in making profits from operations. This reveals the productivity of the organization in making profits using the available means (Shodhganga, n.d.). To understand the financial position of a firm or enterprise by reviewing the financial statements helps in effective decision making for the firm. Moreover, this information is useful to shareholders, investors etc. or any parties that are interested in investing in the firm. (Investopedia).
Ratio analysis is useful for measuring the profitability, efficiency, liquidity and the market performance of the companies. It is very useful in analyzing the relationship between the two items for a specific period. The ratios are used to measure the profitability and the risk of the firm. This is the most widely accepted method to measure the profitability and the efficiency of the firms and companies.