Question

In 200 words describe  liquidity ratios or profitability ratios and how are they important?

Answer 1

Liquidity Ratios are very important to analyze companies efficiency to run a business smoothly. Current Ratio, Quick Ratio and Cash ratio are important liquidity ratios. Current ratio gives the idea of much company will be able to pay it's current liability with it's current asset. Quick ratio gives the idea of much company will be able to pay it's current liability with it's cash/cash equivalent and inventory value. Cash ratio gives the idea of much company will be able to pay it's current liability with it's cash/cash equivalent.

Profitability ratio is also very to judge company's ability to generate return on an investment amount. Return on Asset(ROA),Return on Equity (ROE) and Return on Sales (ROS) are the most important Profitability ratios. Return on asset is the net profit generated on the total asset on balance sheet. ROE is the net profit generated on the value of equity share value and ROS is the net profit generated on the Sales value.