State any one objective of Liquidity Ratio.

Answer – Ratio analysis studies relationships between accounting figures to assess performance and financial position.

• Liquidity ratios assess short-term payment capacity; current ratio = current assets ÷ current liabilities.
• Solvency ratios assess long-term financial stability; debt-equity ratio = debt ÷ shareholders' funds.
• Profitability ratios relate profit to sales or investment and indicate earning efficiency.
• Activity ratios assess how efficiently assets are used, for example inventory turnover.

Ratios are compared over time, with suitable standards and with comparable organisations. A ratio alone is not a verdict: accounting policies, business type and unusual events affect interpretation.