Efficiency ratios

Which of the following classifications of ratios is least likely to be used to evaluate a firm’s operating efficiency?

  1. Profitability ratios
  2. Solvency ratios
  3. Activity ratio

According to this question profitabilty ratios are efficiency ratios since the ans is 2. Need clarification

Efficiency is:

  • Generating sales from assets (activity ratios)
  • Generating profits from sales (profitability ratios)

well have to remember what Solvency Ratio means. it deals with long term liquitidy. so right there you should know that’s your answer,

Be careful not to confuse terms.

Liquidity is, by definition, short-term : the ability to pay your short-term obligations.

Solvency is, by definition, long-term : the ability to pay your long-term obligations.

There is no such thing as _ long-term liquidity _.