Profitability and liquidity

Answer 1

Profitability is simply a measure of how successful a company is relative to its inputs. Measures of profitability include gross profit and net profit ratios, return on assets, return on equity, etc.

Liquidity is a measure of how likely a company is to meet its short-term obligations (e.g., will it be able to settle its liabilities on time). Standard measures of liquidity include current ratio and quick ratio.

Both of these measures are important parts of assessing a company's financial standing. For example, even if a company is profitable, if it is having a hard time meeting it's short-term obligations, then something is wrong with its operations. Likewise, if a company is very liquid because it has large cash reserves lying around, it means that it might not be using its resources efficiently, and should be using some of that cash to invest in company growth.