Question

Briefly explain the difference between liquidity, solvency, and profitability analysis. Answer these questions with a minimum posting of 250 words that is complete, thoughtful, and written in Standard English.

Answer 1

Liquidity analysis:

Liquidity analysis is also known as quick analysis and acid test analysis. It is used as a measure of the company's ability to meet it's current obligations. This analysis is calculated as supplement to the current ratio in analyzing the liquidity of the firm. A normal standard of 1:1 acceptable quick analysis. It is used to measure the ability of the company meet it's current liabilities at short notice.

Solvency analysis:

Solvency analysis is also known as capital structure analysis and leverage analysis. It is used to measure the long- term financial stability of firm and ability of the company to survive over a long period of time.it is considered as dependent upon its ability indicate the relative Interests of owners and creditors in a business.Debt equity, shareholders equity, capital gaining, fixed assets, Interest coverage, dividend coverage analysis are measure the long term solvency of the firm.

Profitability analysis:

Profitability analysis measure the profitability of a concern(the income and operating success of a company for a given period of time). Generally they are calculated in relation to sales or in relation to investments. The various profitability analysis are Gross profit analysis,net profit analysis, operating analysis, operating profit analysis, expenses analysis, return on shareholders fund analysis, return on total assets analysis.