Which of the following statements are True about ratio analysis? (A)…

The correct answer is Option (1) → (B) and (D) only

A ratio is a number that relates one accounting figure to another. What it can and cannot show follows from that: it works only on figures, it can be written in more than one form, and it is useful mainly for comparison.

(A) A ratio reflects quantitative and qualitative aspects of results. Incorrect. Ratios are worked out from money figures in the financial statements, so they show only the quantitative side. Quality of management, staff morale or reputation never enter a ratio; this is one of the limitations of ratio analysis.

(B) Long-term borrowings are concerned about the ability of a firm to discharge its obligations to pay interest and repay the principal amount. Correct. Read “long-term borrowings” as the long-term lenders: those who have lent for a long period watch the firm’s long-term solvency, that is, whether it can keep paying interest and finally repay the loan.

(C) A ratio is always expressed as a quotient of one number divided by another. Incorrect. A ratio may be shown as a pure ratio (2:1), as a percentage, as a number of times, or as a fraction. The word “always” makes the statement false.

(D) Ratios help in comparisons of a firm’s results over a number of accounting periods as well as with other business enterprises. Correct. Ratios reduce figures of very different sizes to a common scale, so a firm can be compared with its own past years (intra-firm) and with other firms (inter-firm).