As Profit margin is reducing, could we look at it through margin ratios (like Income statement analysis)
- Reduction in Gross margin indicates following possibility (1) price/unit reduction, (2) increasing in cost/unit ,(3) change in product mix that increase % of low gross margin product.
- If not because of the Gross margin,operating marign decreases, the problem could be an increase in % of SG&A : (1) SG&A increase in absolute , (2) gross profit decreases.
- If not all of above reasons, could be increase in % of cost interest.
Does this make sense?