Accountancy Part BAccounting Ratios

Solvency Ratios include: A. Debt-Equity RatioB. Current RatioC. Debt…

Solvency Ratios include:

A. Debt-Equity Ratio
B. Current Ratio
C. Debt to capital employed Ratio
D. Gross Profit Ratio
E. Return on capital employed

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → A and C only

Solvency ratios measure the ability of the business to meet its long-term debt.

A. Debt-Equity Ratio — True. It is the first solvency ratio in the book’s list.

B. Current Ratio — False. It is a liquidity ratio (short-term).

C. Debt to capital employed Ratio — True. It is a solvency ratio.

D. Gross Profit Ratio — False. It is a profitability ratio.

E. Return on capital employed — False. It is a profitability ratio.

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):
Liquidity Ratios – “Liquidity ratios are calculated to measure the short-term solvency of the business, i.e. the firm’s ability to meet its current obligations. These are analysed by looking at the amounts of current assets and current liabilities in the balance sheet. The two ratios included in this category are current ratio and liquidity ratio.”

NCERT (2026-27 edition):
Profitability Ratios

Extract from the NCERT textbook