Ratio analysis compares the line-item data in a firm's financial statements, which will reveal many understandings regarding liquidity, profitability, operational efficiency, and solvency. Moreover, ratio analysis can be used to look at trends for one or more firms within the same industry or sector. Ratio analysis compares line-item data.

Respond to the following in a minimum of 175 words:

• 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?