Profitability ratios indicate
I. whether the firm is using its assets productively;
II. whether the firm is liquid;
III. whether the firm is profitable;
IV. how highly the firm is valued by investors
A)I only
B)II only
C)III only
D)III and IV only

Question

Quizplus · Accepted Answer

Profitability ratios specifically measure how profitable the firm is, such as its ability to generate profit from sales or how efficiently it is using its resources to generate profit. They do not measure liquidity or investor valuation, so I and IV are incorrect.

Profitability Ratios Indicate I. Whether the Firm Is Using Its Assets Productively;