Ratio analysiscomparestheline-item datain a firm'sfinancial statements, which willrevealmanyunderstandings regarding liquidity,profitability, operational efficiency, and solvency.Moreover, ratioanalysiscan be used to look at trends for oneor morefirms within the same industryor sector.Ratio analysis compares line-item data.

Respond to the following:

• List five major categories of ratios and explain how they could be used to help a firm.
• What are the most important liquidity ratios and why?