Question

Find :
1. Liquidity Ratio
2. Solvency Ratio
3. Profitability Ratio..​

Answer 1

Answer:

Liquidity ratios and the solvency ratio are tools investors use to make investment decisions. Liquidity ratios measure a company's ability to convert its assets into cash. On the other hand, the solvency ratio measures a company's ability to meet its financial obligations.

The solvency ratio includes financial obligations in both the long and short term, whereas liquidity ratios focus more on a company's short-term debt obligations and current assets.

The solvency ratio is a comprehensive measure of solvency, as it measures a firm's actual cash flow—rather than net income—by adding back depreciation and other non-cash expenses to assess the company’s capacity to stay afloat. It measures this cash flow capacity in relation to all liabilities, rather than only short-term debt. This way, the solvency ratio assesses a company's long-term health by evaluating its repayment ability for its long-term debt and the interest on that debt.

The solvency ratio is used often by prospective business lenders to discover whether a company’s cash flow is sufficient to meet its short-and long-term liabilities. The lower a company's solvency ratio, the greater the probability that it will default on its debt obligations.

In contrast to liquidity ratios, the solvency ratio measure a company's ability to meet its total financial obligations. The solvency ratio is calculated by dividing a company's net income and depreciation by its short-term and long-term liabilities. This indicates whether a company's net income is able to cover its total liabilities. Generally, a company with a higher solvency ratio is considered to be a more favorable investment.

Explanation: