Accountancy Part BAccounting Ratios

Which of the following is not a profitability ratio?

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → Proprietory Ratio

Profitability ratios measure the earning capacity of the business. The proprietary ratio (shareholders’ funds ÷ total assets) shows how much of the assets the owners have financed; it judges long-term safety, so it is a solvency ratio.

Option (1) Price Earning Ratio — A profitability ratio. It relates the market price of a share to its earnings.
Option (3) Earning per share — A profitability ratio. It shows the profit earned for each equity share.
Option (4) Operating Ratio — A profitability ratio. It shows the operating cost per rupee of revenue.

NCERT (2026-27 edition):
Types of Ratios – “… Solvency ratios are calculated to determine the ability of the business to service its debt in the long run instead of in the short run. They include debt equity ratio, total assets to debt ratio, proprietary ratio and interest coverage ratio.”

NCERT (2026-27 edition):
Types of Ratios – “… Profitability ratios are calculated to analyse the earning capacity of the business which is the outcome of utilisation of resources employed in the business. The ratios include Gross Profit ratio, Operating ratio, Net Profit Ratio, Return on investment (Capital employed), Earnings per Share, Book Value per Share, Dividend per Share and Price/Earning ratio.”