Name three types of financial ratios.

The selection of liquidity ratios, profitability ratios, and solvency ratios as types of financial ratios is grounded in the fundamental analysis of a company's financial performance and condition.

Liquidity ratios measure a company’s ability to meet its short-term obligations. Common examples include the current ratio and the quick ratio. These ratios are critical for assessing whether a firm has enough liquid assets to cover its current liabilities, thus providing insights into its financial health.

Profitability ratios, on the other hand, evaluate a company’s ability to generate earnings relative to its revenue, assets, or equity. Common profitability ratios include the net profit margin, return on assets (ROA), and return on equity (ROE). By analyzing profitability ratios, stakeholders can understand how efficiently a company is generating profit and managing its costs.

Solvency ratios assess a company's ability to meet its long-term debt obligations. These ratios indicate financial leverage and the overall solvency of a business. Examples include the debt to equity ratio and interest coverage ratio. This insight helps in determining the financial viability of a company over the long term.

Together, these three categories cover essential aspects of financial health: the ability to manage short-term obligations (liquidity), generate profit (profitability), and sustain long-term growth with