Accountancy Part BAccounting Ratios

Identify which of the following are normally computed to identify the…

Identify which of the following are normally computed to identify the liquidity of the Business?

(A) Proprietary Ratio
(B) Interest Coverage Ratio
(C) Quick Ratio
(D) Debt Equity Ratio
(E) Current Ratio

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 1

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

Liquidity ratios test the ability to meet current obligations and compare current assets with current liabilities. The quick ratio is also called the acid test ratio.

(A) Proprietary Ratio — False. It is a solvency ratio.
(B) Interest Coverage Ratio — False. It is a solvency ratio.
(C) Quick Ratio — True. It is a liquidity ratio.
(D) Debt Equity Ratio — False. It is a solvency ratio.
(E) Current Ratio — True. It is a liquidity ratio.

NCERT (2026-27 edition):
Types of Ratios – “There are many types of ratios, viz., liquidity, solvency, activity and profitability ratios. The liquidity ratios include current ratio and acid test ratio. 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):
Quick or Liquid Ratio – “… It is calculated to serve as a supplementary check on liquidity position of the business and is therefore, also known as ‘Acid-Test Ratio’.”