We know that Google's Spam sheriff Matt Cutts releasing videos regarding important issues. Today Matt Cutts released a video about determination of penalty on site ranking. For the responding a question by Ed from London in Matt Cutts twitter profile-
How can you tell if your site is suffering from an algorithmic penalty, or you are simply being outgunned by better content?
According to Matt Cutts. This is one kind of tricky thing because Google has large amount of algorithm and all the algorithm interact. And due to this interact a site get rank or penalty which is very hard to draw a fine distinction between those different points.
If Webmaster see that your website's rank dropped then they should check the Google Webmaster Tools for notification message about penalty. Beside of this Webmaster should check the crawl error list. If you didn't receive any penalty message then you must fix the crawl error.
Matt Cutts think terms of algorithmic penalties doesn’t really working “more and more” on code which applies to general quality changes.
They typically think about holistic ranking. And Cutts, claiming Google rolled out around 665 algorithm and that changes affected search results deeply in 2012.
However Matt Cutts didn't clear about the reason of penalty because it is very difficult to determine for Google. But Google Ranking factor will be algorithmic, as a result if any site's rank dropped then site owner can rescoring the rank by changing , modifying and re-indexing their site.
There are many webmaster who become irritated about continuous Google algorithm update they should be happy for Google algorithmic ranking. Though Google is a leading in search engine so they are not actually rude in penalty. They will give you chance to make changes in your site to restore you rank easily.
For more details you can see the released video from Google spam sheriff Matt Cutts.