Accounting Ratios

Topics in this chapter

• Ratio Basics and Analysis
• Liquidity Ratios
• Solvency Ratios
• Activity and Turnover Ratios
• Profitability and Return Ratios
• Limitations of Ratio Analysis

Cheat sheet

Practice questions

1. Question 1Q-8A4A1F

   Which of the following transactions will improve the Current Ratio?

   1. A.Payment to a trade payable
   2. B.Purchase of goods on credit
   3. C.Sale of goods for cash at cost
   4. D.Issuance of equity shares for cash
   See the answer and solution
2. Question 2Q-91B233

   If Revenue from Operations is Rs. 6,00,000, Gross Profit is 25% on Cost, and Operating Expenses are Rs. 60,000, what will be the Operating Ratio?

   1. A.75.0%
   2. B.85.0%
   3. C.80.0%
   4. D.90.0%
   See the answer and solution
3. Question 3Q-73726A

   What does a Quick Ratio of 0.8:1 indicate about a firm?

   1. A.The firm has sound short-term financial stability.
   2. B.The firm's liquid assets are less than its current liabilities.
   3. C.The firm has excessive inventory.
   4. D.The firm's current assets are double its current liabilities.
   See the answer and solution
4. Question 4Q-B847F1

   Debt-Equity Ratio of a company is 2:1. Which of the following transactions will result in an increase in this ratio?

   1. A.Issue of bonus shares
   2. B.Conversion of debentures into equity shares
   3. C.Purchase of fixed asset on long-term deferred payment basis
   4. D.Redemption of preference shares in cash
   See the answer and solution
5. Question 5Q-0922B5

   Which of the following is NOT considered while calculating Proprietary Ratio?

   1. A.Equity Share Capital
   2. B.Long-term Borrowings
   3. C.Reserves and Surplus
   4. D.Preference Share Capital
   See the answer and solution