The following ratios primarily measure risk:

(A) Liquidity

(B) Activity

(C) Debts

(D) Profitability

Choose the correct answer from the options given below:

Risk refers to the uncertainty of meeting financial obligations and sustaining business operations. Different ratios measure different aspects of risk:

Liquidity Ratios measure short-term financial risk by assessing the firm's ability to meet immediate obligations. Current Ratio and Quick Ratio indicate whether the company can pay off short-term debts, directly reflecting liquidity risk.

Debt Ratios (Solvency Ratios) measure long-term financial risk by evaluating the extent of borrowed funds and the ability to service debt. Debt-Equity Ratio and Interest Coverage Ratio assess solvency risk and the burden of debt on the company.

Profitability Ratios measure business or operational risk. Low profitability indicates higher risk of business failure and inability to generate adequate returns. These ratios reflect the risk associated with earning capacity and sustainability.

Activity Ratios (Turnover Ratios) measure operational efficiency - how effectively assets are being utilized. These ratios like Inventory Turnover and Debtors Turnover primarily assess management efficiency rather than risk directly.

Therefore, Liquidity (A), Debt (C), and Profitability (D) ratios primarily measure risk, while Activity ratios (B) measure efficiency.

Correct Answer: Option 2