Accountancy Part BAccounting Ratios

Identify the ratio that is not computed for evaluating the solvency o…

Identify the ratio that is not computed for evaluating the solvency of the business.

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → Operating Ratio

Solvency ratios test the firm’s ability to pay its long-term debts. The operating ratio compares operating cost with revenue from operations, so it is a profitability ratio.

Option (1) Debt-Equity Ratio — A solvency ratio. It compares long-term debt with shareholders’ funds.
Option (2) Proprietary Ratio — A solvency ratio. It shows the share of total assets financed by shareholders’ funds.
Option (4) Interest Coverage Ratio — A solvency ratio. It shows how many times the profit covers the interest on long-term debt.

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.”