Match List-I with List-II. LIST I LIST II (A) Measure of liquidity (I…

Match List-I with List-II.

LIST I	LIST II
(A) Measure of liquidity	(I) Return on capital employed
(B) Measure of earning capacity	(II) Inventory Turnover ratio
(C) Measure of activity of firm's inventory	(III) Profitability ratio
(D) Measure of Productive efficiency of funds	(IV) Current ratio

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → (A)-(IV), (B)-(III), (C)-(II), (D)-(I)

Ratios are grouped by what they measure: liquidity, solvency, activity (turnover) and profitability.

(A) Measure of liquidity — this matches (IV) Current ratio. It compares current assets with current liabilities and shows whether short-term debts can be met.

(B) Measure of earning capacity — this matches (III) Profitability ratio. Profitability ratios show how much profit the business earns from its revenue and resources.

(C) Measure of activity of firm's inventory — this matches (II) Inventory Turnover ratio. It shows how many times the average inventory is turned into sales during the year.

(D) Measure of Productive efficiency of funds — this matches (I) Return on capital employed. It relates the profit before interest and tax to the funds employed, so it shows how productively the funds have been used.

NCERT (2026-27 edition):
Summary – “… Types of Ratios: There are many types of ratios, viz., liquidity, solvency, activity and profitability ratios. The liquidity ratios include current ratio and acid test ratio.”

NCERT (2026-27 edition):
Summary – “… The turnover ratios basically exhibit the activity levels characterised by the capacity of the business to make more sales or turnover and include Inventory Turnover, Trade Receivables Turnover, Trade Payables Turnover, Working Capital Turnover, Fixed Assets Turnover and Current assets Turnover.”

NCERT (2026-27 edition):
Summary – “… Profitability ratios are calculated to analyse the earning capacity of the business which is the outcome of utilisation of resources employed in the business.”

NCERT (2026-27 edition):
Return on Capital Employed or Investment – “… Significance: It measures return on capital employed in the business. It reveals the efficiency of the business in utilisation of funds entrusted to it by shareholders, debenture-holders and long-term loans.”