The following groups of ratios primarily measure risk:
A) activity, debt, and profitability.
B) liquidity, activity, and debt.
C) liquidity, activity, and profitability.
D) liquidity, activity, and common stock.

Question

Quizplus · Accepted Answer

Liquidity ratios such as current ratio and quick ratio, activity ratios such as inventory turnover and accounts receivable turnover, and debt ratios such as debt-to-equity ratio primarily measure risk. Profitability ratios such as return on assets and return on equity primarily measure performance. Common stock is an equity component and not a ratio. Therefore, option B is the correct answer as it includes all the ratios that measure risk.

The Following Groups of Ratios Primarily Measure Risk