Financial ratios, which use data from a firm’s balance sheet, income statement, statement of cash flows, and certain market data, are often used when evaluating the financial performance of a firm.

a. Liquidity ratios indicate a firm’s ability to meet its short-term financial obligations.

b. Asset management ratios indicate how efficiently a firm is using its assets to generate sales.

c. Financial leverage management ratios indicate a firm’s capacity to meet short- and longterm debt obligations.

d. Profitability ratios measure how effectively a firm’s management generates profits.

e. Market-based ratios reflect the financial market’s assessment of a company’s performance.

f. Dividend policy ratios indicate the dividend practices of a firm. k-63