Which technique is used to assess profitability, solvency and efficiency of an enterprise through the technique of ratio analysis?

Ratio Analysis is the technique used to assess profitability, solvency, and efficiency of an enterprise.

Ratio Analysis establishes mathematical relationships between different items of financial statements to evaluate the financial performance and position of a business. It calculates ratios by comparing related figures from the Balance Sheet and Statement of Profit & Loss.

The three main areas assessed through Ratio Analysis are:

Profitability - Measures the earning capacity of the business (e.g., Gross Profit Ratio, Net Profit Ratio, Return on Investment)

Solvency - Evaluates the ability to meet long-term obligations (e.g., Debt-Equity Ratio, Interest Coverage Ratio)

Efficiency - Assesses how effectively resources are utilized (e.g., Inventory Turnover Ratio, Debtors Turnover Ratio)

The other options serve different purposes:

• Trend Analysis studies financial data over multiple periods to identify patterns
• Cash Flow Analysis examines cash inflows and outflows
• Comparative Statements compare financial statements across different periods or with other firms

Since the question specifically mentions evaluating profitability, solvency, and efficiency through establishing relationships between financial items, Ratio Analysis is the correct answer.