The main types of financial ratios in accounting includes:
- Profitability ratios
- Liquidity ratios
- Solvency ratios
- Valuation ratios
What is a financial ratios?
These are ratio that helps in analyzes and comparison of relationships between financial statement accounts for identification of strengths and weaknesses of a firm.
The type of financial ratios:
- Profitability ratios: This ratio helps to assess the firm ability to generate earnings relative to its revenue.
- Liquidity ratios: This ratio help to assess the firm's ability to pay debt obligations and its margin of safety.
- Solvency ratios: This ratio help to assess the firm's ability to meet its long-term debt obligation.
- Valuation ratios: This ratio help to assess the firm's financial soundness in relation to its market value.
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