Question

Which of the following are traditional financial ratio categories? (3 answers)

A) Profitability ratios
B) Liquidity ratios
C) Activity ratios
D) Solvency ratios

Answer 1

Traditional financial ratio categories include profitability ratios, liquidity ratios, and activity ratios.

Step-by-step explanation:

Traditional financial ratio categories are used to analyze the financial performance of a company. The three traditional financial ratio categories are:

1. Profitability ratios: These ratios measure the company's ability to generate profits and include metrics such as gross profit margin, net profit margin, and return on equity.
2. Liquidity ratios: These ratios assess the company's ability to meet short-term obligations and include metrics such as current ratio and quick ratio.
3. Activity ratios: These ratios evaluate the efficiency of the company's operations and include metrics such as inventory turnover and accounts receivable turnover.

These traditional financial ratio categories provide insights into different aspects of a company's financial performance and help stakeholders make informed decisions.