These ratios are calculated to determine the ability to meet long-ter…

These ratios are calculated to determine the ability to meet long-term contractual obligations:

A. Proprietary Ratio
B. Inventory Turnover Ratio
C. Debt to Capital Employed Ratio
D. Investment Turnover Ratio
E. Interest Coverage Ratio

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → A, C and E only

The ability to meet long-term contractual obligations (interest and repayment of debt) is solvency.

A. Proprietary Ratio — True. It is a solvency ratio.
B. Inventory Turnover Ratio — False. It is an activity (turnover) ratio.
C. Debt to Capital Employed Ratio — True. It is a solvency ratio.
D. Investment Turnover Ratio — False. It is an activity (turnover) ratio.
E. Interest Coverage Ratio — True. It is a solvency ratio.

NCERT (2026-27 edition):
Solvency Ratios – “… Solvency of business is determined by its ability to meet its contractual obligations towards stakeholders, particularly towards external stakeholders, and the ratios calculated to measure solvency position are known as ‘Solvency Ratios’. These are essentially long-term in nature.”

NCERT (2026-27 edition):
Solvency Ratios – “… Solvency ratios are calculated to determine the ability of the business to service its debt in the long run. The following ratios are normally computed for evaluating solvency of the business. 1. Debt-Equity Ratio; 2. Debt to Capital Employed Ratio; 3. Proprietary Ratio; 4. Total Assets to Debt Ratio; 5. Interest Coverage Ratio.”

NCERT (2026-27 edition):
Activity (or Turnover) Ratio – “… The important activity ratios calculated under this category are 1. Inventory Turnover; 2. Trade receivable Turnover; 3. Trade payable Turnover; 4. Investment (Net assets) Turnover 5. Fixed assets Turnover; and 6. Working capital Turnover.”