Based on following data related to Ambe limited, Jaipur, Answer question.
|
|
₹ |
|
Revenue from operations |
8,40,000 |
|
Cost of revenue from operations |
4,20,000 |
|
Selling Expenses |
80,000 |
|
Administrative Expenses |
40,000 |
|
Equity share capital |
1,00,000 |
|
8% preference share capital |
50,000 |
|
10% debentures |
1,00,000 |
|
Profit after Tax |
1,74,000 |
|
Tax Rate |
40% |
Identify the ratios that determine the ability of the business to service its debts in the long run.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Solvency ratios
Solvency ratios (debt-equity, debt to capital employed, proprietary, total assets to debt, interest coverage) show whether the business can meet its long-term obligations – interest and repayment of principal.
Option (2) Liquidity ratios — Incorrect. They test the short-term position (current ratio, quick ratio).
Option (3) Activity ratios — Incorrect. They measure how efficiently resources are used (turnover ratios).
Option (4) Profitability ratios — Incorrect. They measure profit earned in relation to revenue or capital.
NCERT (2026-27 edition): |