Question

The following groups of ratios are primarily measure risk:

Options

• liquidity, activity, and profitability

• liquidity, activity, and inventory

• liquidity, activity, and debt

• liquidity, debt and profitability

Answer 1

liquidity, debt and profitability

Explanation:

This grouping measures the primary financial and operational risks of a business enterprise. Liquidity ratios evaluate short-term risk by testing a firm’s capacity to pay immediate debts, while debt ratios measure long-term solvency risk by tracking dependency on borrowed funds. Profitability ratios reflect operational risk, as falling profits indicate a greater danger of business failure.