Question

Which ratios are primarily measures of return?

• A. Liquidity
• B. Activity
• C. Debt
• D. Profitability

Hint:

Profitability ratios measure earnings capacity and overall financial performance.

Answer 1

The Correct Option is D

Profitability ratios measure a firm's ability to earn profits from its resources and operations. They include return on equity, net profit ratio and return on capital employed. Liquidity ratios measure short-term obligations, activity ratios measure efficiency and debt ratios measure long-term solvency. Because profitability ratios focus on returns, they are used to judge whether a company is generating adequate earnings relative to sales, assets or capital.