Read the following information and answer the question.
Following is the Balance Sheet of Titanic Ltd. as at March 31, 2022.
| Particulars | Amount (₹) |
| 1. Shareholder's Fund a) Share Capital b) Reserves & Surplus |
24,00,000 6,00,000 |
| 2. Non-current liabilities Long-term borrowings |
9,00,000 |
| 3. Current liabilities a) Short term borrowings b) Trade Payables c) Short-term Provisions |
6,00,000 23,40,000 60,000 |
| Total | 69,00,000 |
| II. Assets 1)Non-Current Assets a) Fixed assets b) Tangible assets |
45,00,000 |
| 2. Current Assets a) Inventories b) Trade Receivables c) Cash and Cash equivalent d) Short-term loans & advances |
12,00,000 9,00,000 2,28,000 72,000 |
| Total | 69,00,000 |
The..................ratio provides the information critical to the survival of the firm.
Answer & explanation
Correct answer: option 3
The correct answer is option 3- Solvency.
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. Solvency ratio provide the information critical to the long-term operation of the firm. Therefore, the solvency ratio provides the information critical to the survival of the firm.