Explain the significance of various types of ratios.
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Types of Ratios
Most analysts think of financial ratios as consisting of five basic types:
*Profitability ratios measure the firm’s use of its assets and control of its expenses to generate an acceptable rate of return.
** Liquidity ratios measure the availability of cash to pay debt.
*** Activity ratios, also called efficiency ratios, measure the effectiveness of a firm’s use of resources, or assets.
**** Debt, or leverage, ratios measure the firm’s ability to repay long-term debt.
***** Market ratios are concerned with shareholder audiences. They measure the cost of issuing stock and the relationship between return and the value of an investment in company’s shares
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