Name two liquidity ratios and two profitability ratios.

• A. Liquidity: current ratio and quick ratio; Profitability: ROA and ROE.
• B. Liquidity: debt-to-equity ratio and interest coverage; Profitability: gross margin and operating margin.
• C. Liquidity: current ratio and debt ratio; Profitability: ROA and net margin.
• D. Liquidity: quick ratio and asset turnover; Profitability: ROA and ROE.

Answer: (A)

Two important measures of a firm's financial health are liquidity and profitability. Liquidity ratios assess the ability to meet short-term obligations. The current ratio compares current assets to current liabilities, showing how well short-term resources cover short-term debts. The quick ratio tightens this by excluding inventories, using (current assets minus inventories) divided by current liabilities, which reflects immediate near-term liquidity without relying on selling inventory.

Profitability ratios reveal how effectively a company turns resources into profits. Return on assets links net income to total assets, indicating how efficiently assets generate earnings. Return on equity relates net income to shareholders’ equity, showing how well the company uses owners’ funds to produce profits.

Other options mix categories that aren’t pure liquidity or aren’t standard pairings for this question (for example, debt ratio or interest coverage are more about solvency/coverage, and margin measures are profitability but aren’t paired with the classic liquidity ratios). Therefore, the correct pairing is current ratio and quick ratio for liquidity, and ROA and ROE for profitability.