Which of the following are considered the four main Key Performance Indicators (KPIs) commonly used in financial ratio analysis?

• A. Liquidity, Profitability, Efficiency, and Solvency ratios
• B. Current Assets, Fixed Assets, Current Liabilities, and Long-term Liabilities
• C. Net Income, Gross Profit, Operating Cash Flow, and Equity
• D. Revenue, Expenses, Assets, and Liabilities

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of Key Performance Indicators (KPIs) in financial ratio analysis. KPIs are metrics used to evaluate the financial health and performance of a company. They are typically grouped into categories that provide insights into different aspects of the business.
2. Step 2: Familiarize yourself with the four main categories of financial ratios commonly used as KPIs: Liquidity, Profitability, Efficiency, and Solvency. These categories help assess a company's ability to meet short-term obligations, generate profits, utilize resources effectively, and manage long-term debt.
3. Step 3: Compare the options provided in the question to the four main KPI categories. For example, 'Liquidity, Profitability, Efficiency, and Solvency ratios' directly aligns with the recognized categories of financial ratio analysis.
4. Step 4: Evaluate the other options to ensure they do not match the definition of the four main KPIs. For instance, 'Current Assets, Fixed Assets, Current Liabilities, and Long-term Liabilities' refers to components of the balance sheet, not KPI categories. Similarly, 'Net Income, Gross Profit, Operating Cash Flow, and Equity' and 'Revenue, Expenses, Assets, and Liabilities' are financial metrics but do not represent the four main KPI categories.
5. Step 5: Conclude that the correct answer is 'Liquidity, Profitability, Efficiency, and Solvency ratios,' as these are the established categories of KPIs in financial ratio analysis.