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# Profitability, Liquidity and Solvency ratios

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Describe each type of ratio category: liquidity, solvency, and profitability. Also, choose one ratio from each category and provide an example and describe what each is useful for.

##### Solution Summary

The solution gives explanations and examples for the different categories of ratios.
The following ratios are described:
- Liquidity ratios.
- Profitability ratios.
- Solvency

Examples are given for each category.

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TYPES OF RATIOS

Liquidity Ratios: Liquidity relates to the ability of a company's to meet its short-term debts (current liabilities) as and when due. The major focus, in liquidity analysis, is to ascertain the relationship between the current assets and current liabilities.

An example of a ratio under this category is the Current Ratio. This is the most commonly used ratio and measures the extent of coverage that a company's current assets give over the current liabilities. There is no fixed number for this ratio; ...

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• B. Sc., University of Nigeria
• M. Sc., London South Bank University
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