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The ………….. ratios provide the information critical to the long run operation of the firm.a.Liquidityb.Profitabilityc.Solvencyd.Activity

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Solution

The correct answer is b. Profitability ratios.

Profitability ratios are crucial for assessing a firm's long-term operational success, as they demonstrate the company's ability to generate earnings relative to its revenue, assets, and equity. Profitability focuses on how effective a company is at generating profit compared to its expenses and costs, making it a critical indicator of overall financial health and sustainability over the long run.

In comparison:

  • Liquidity ratios measure a firm's ability to meet short-term obligations.
  • Solvency ratios assess a company's long-term ability to meet its debt obligations.
  • Activity ratios evaluate how efficiently a company utilizes its assets.

Thus, while all these ratios are important, profitability ratios specifically provide insights essential for the firm's long-term operations and success.

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