Match the following:
| 1. | Liquidity ratio | A. | Analyse profits in relation to sales |
| 2. | Solvency ratio | B. | Efficiency of operations |
| 3. | Profitability ratio | C. | Short-term solvency of business |
| 4. | Turnover ratio | D. | Long-term solvency of business |
Answer & explanation
Correct answer: option 2
Liquidity ratio: Liquidity ratios are calculated to determine short-term solvency of business. Analysis of current position of liquid funds determines the ability of the business to pay the amount due to its stakeholders
Solvency ratio: Ratios which are calculated to determine the long-term solvency of business are known as solvency ratios. Thus, these ratios determine the ability of a business to service its indebtedness.
Profitability ratio: These ratios are calculated to analyze the profitability position of a business. Such ratios involve analysis of profits in relation to sales or funds or capital employed.
Turnover ratio: Turnover ratios are calculated to determine the efficiency of operations based on effective utilization of resources. Higher turnover means better utilization of resources.