Financial ratios are being classified into all the

Solution

Liquidity ratios measure the adequacy of current and liquid assets and help evaluate the ability of the business to pay its short-term debts. Current ratio or working capital ratio Quick ratio or acid test ratio Absolute liquid ratio Current cash debt coverage ratio Profitability ratios measure the efficiency of management in the employment of business resources to earn profits. Eg. Net profit (NP) ratio Gross profit (GP) ratio Price earnings ratio (P/E ratio) Operating ratio Expense ratio Activity ratios (also known as turnover ratios) measure the efficiency of a firm or company in generating revenues by converting its production into cash or sales. Eg. Inventory turnover ratio Receivables turnover ratio Accounts payable turnover ratio Average payment period Solvency ratios (also known as long-term solvency ratios) measure the ability of a business to survive for a long period of time. Eg. Debt to equity ratio Times interest earned (TIE) ratio Fixed assets to equity ratio