Which of the following are traditional financial ratio categories?

• A. Production, marketing, and innovation ratios
• B. Market share, customer satisfaction, and employee turnover ratios
• C. Budgeting, forecasting, and planning ratios
• D. Liquidity, profitability, solvency, and efficiency ratios

Answer: (D)

Verified step by step guidance

1. Understand the concept of financial ratios: Financial ratios are tools used to evaluate a company's financial performance and condition. They are categorized based on the specific aspect of the business they measure.
2. Identify the traditional financial ratio categories: Traditional financial ratio categories include liquidity, profitability, solvency, and efficiency ratios. These categories are widely recognized in financial accounting and analysis.
3. Define each category: Liquidity ratios measure a company's ability to meet short-term obligations (e.g., current ratio, quick ratio). Profitability ratios assess a company's ability to generate profit (e.g., net profit margin, return on equity). Solvency ratios evaluate a company's ability to meet long-term obligations (e.g., debt-to-equity ratio). Efficiency ratios measure how effectively a company uses its assets (e.g., inventory turnover, asset turnover).
4. Compare the given options: Review the options provided in the problem and determine which align with the traditional financial ratio categories. The correct answer is liquidity, profitability, solvency, and efficiency ratios.
5. Conclude the reasoning: The other options (e.g., production, marketing, innovation ratios) are not traditional financial ratio categories. They may relate to operational or strategic metrics but are not part of financial accounting's standard ratio analysis.