Earnings per share, return on sales, and return on equity are all examples of which type of financial ratios?
A
Profitability ratios
B
Activity ratios
C
Liquidity ratios
D
Leverage ratios
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Understand the concept of financial ratios: Financial ratios are tools used to evaluate a company's financial performance and condition. They are categorized into different types based on the aspect of performance they measure.
Define profitability ratios: Profitability ratios measure a company's ability to generate profit relative to its revenue, assets, or equity. Examples include earnings per share (EPS), return on sales (ROS), and return on equity (ROE).
Define activity ratios: Activity ratios assess how efficiently a company uses its assets to generate revenue. Examples include inventory turnover and accounts receivable turnover.
Define liquidity ratios: Liquidity ratios evaluate a company's ability to meet short-term obligations. Examples include the current ratio and quick ratio.
Define leverage ratios: Leverage ratios measure the extent to which a company uses debt to finance its operations. Examples include the debt-to-equity ratio and interest coverage ratio.