According to the study of Myšková and Hájek (2017)[11], financial ratios
are
the
most popular method of financial analysis due to their use as an input for complex mathematical models. Predictive models
such as
Altman model and Ohlson model are based on financial
ratios. In the study of Nwanyanwu, (2017)[13] ratios are interpreted as being
a yardstick or an index to compare two or more items.
Using
the
prepared financial
statements, ratios serve
as
an analytical tool providing solution of clarity. Barrigner and Ireland has stated that ratio analysis is the most practical way
to interpret a company’s financial statements. According to Mcleany
& Atrill (2005)[9], financial ratios are used to provide a quick picture of the financial health of a business based on their ability to highlight the areas of good and bad performance. Therefore, as
mentioned in
the earlier
section
of this article, it is important to analyze the financial ratios to get a clear picture about the financial performance of
the company. This study will analyze the relationship of each
chosen variable with the financial performance, to enable the managers
to
predict the future financial performance with past financial data and ratios.
Profitability ratios measure the ability of the organization to
earn profits in the short and long term in relation to either sales
or
the investments made, as found by
Nwanyanwu, (2017)[13].According to the Investopedia Stock Analysis (2018)[8], net profit margin is the
ratio of net profit to revenues of a company or
a
particular business segment. Net profit margin is
important to understand what percentage of
revenue gets converted to net profit in an organization. In the study of Erdogan et Al. (2015)[5], they
have used net profit margin as the indicator of financial performance to analyze the relationship between key financial ratios and the financial performance of
the organizations. Net profit margin has been used to assess the financial performance in the pharmaceutical industry, in the study
of Baltes and Minculete (2016)[2].Therefore, in this study
net profit margin will be
used as the independent variable and following the method used in the study of Erdogan et Al. (2015)[5], the impact of the other financial ratios on net profit margin will be analyzed.
