Profitability ratio
Debt equity ratio
Acid test ratio
Current ratio
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The correct answer is A. Profitability ratio.
A profitability ratio is a financial ratio that measures a company’s ability to generate profit from its revenue. Profitability ratios are used to compare a company’s performance to its peers and to its own historical performance.
There are many different types of profitability ratios, but some of the most common include:
- Return on assets (ROA): This ratio measures a company’s net income as a percentage of its total assets.
- Return on equity (ROE): This ratio measures a company’s net income as a percentage of its total equity.
- Return on sales (ROS): This ratio measures a company’s net income as a percentage of its total sales.
Profitability ratios are important because they provide a measure of a company’s ability to generate profits. This information can be used to assess a company’s financial health and to make investment decisions.
The other options are not as good indicators of overall efficiency because they do not measure a company’s ability to generate profits.
- Debt equity ratio: This ratio measures a company’s debt as a percentage of its equity. It is a measure of a company’s financial leverage.
- Acid test ratio: This ratio measures a company’s ability to meet its short-term obligations. It is calculated by dividing a company’s current assets by its current liabilities.
- Current ratio: This ratio measures a company’s ability to meet its short-term obligations. It is calculated by dividing a company’s current assets by its current liabilities.