The correct answer is Option (3) - A-III, B-I, C-II, D-IV.
* Liquidity Ratio- Acid Test Ratio.
These ratios gauge a company's ability to meet its short-term financial obligations promptly. Liquidity ratios are calculated to measure the short-term solvency of the business, i.e. the firm’s ability to meet its current obligations. These are analysed by looking at the amounts of current assets and current liabilities in the balance sheet. Two common liquidity ratios are the current ratio and the acid-test ratio or quick ratio.
* Solvency Ratio- Interest Coverage Ratio
Solvency ratios focus on assessing a business's capability to fulfill its long-term debt obligations rather than short-term ones. Solvency ratios are calculated to determine the ability of the business to service its debt in the long run. Examples of solvency ratios include the debt equity ratio, total assets to debt ratio, proprietary ratio, and interest coverage ratio.
* Activity Ratio- Trade Payable Turnover Ratio.
These ratios provide insights into a company's operational efficiency and its ability to generate sales or turnover. Key turnover ratios encompass Inventory Turnover, Trade Receivables Turnover, Trade Payables Turnover, Working Capital Turnover, Fixed Assets Turnover, and Current Assets Turnover.
* Profitability Ratio- Operating Ratio.
Profitability ratios delve into a company's capacity to generate earnings based on the utilization of its resources. Prominent profitability ratios include the Gross Profit ratio, Operating ratio, Net Profit Ratio, Return on Investment (ROI) or Capital Employed, Earnings per Share (EPS), Book Value per Share, Dividend per Share, and Price/Earnings (P/E) ratio. |
