Question

each off these 4 categories (liquidity, activity, profitability, leverage) tells an important peice if information, Much like an instrument on a car's Dashboard give one piece of the car's performance puzzle. in your opinion, which of the four categorizes is most important? why?

Answer 1

Liquidity refers to the ability of the firms to generate cash.It means availability of current assets which can be easily converted into cash in short spam of time.So basically liquidity states the ability of the firm to pay off its current liability and manage it's operation without any disruption.

Activity it refers to the primary activity performed by firm to generate profit and it is main objective or purpose of the firm.

Profitability refers to the ability of the firm to generate revenue over it's expenses and it shows the ability of the firm to generate profit from its operations.

Leverage means how firm has financed it's purchase of assets for the purpose of it's operation.It can use leverage through debt financing by borrowing from bank or financial institutions.It represents the level of debt used by firm to finance it's assets.

In my opinion activity is most important since it acts as a basis for others.On the basis of activity performed by firm it profitability,leverage, liquidity etc. can be judged or decided.So it is the primary activity for all other factors.