On the basis of the following information, answer the question :
|
Particulars |
Amount (Rs.) |
|
Share Capital : |
|
|
Equity share capital (Rs. 10 each) |
12,00,000 |
|
12% Preference share capital |
3,00,000 |
|
Reserves & Surplus |
5,00,000 |
|
10% Debentures |
12,00,000 |
|
Current Liabilities |
3,00,000 |
|
Fixed Assets |
28,00,000 |
|
Current Assets |
7,00,000 |
|
Net profit after tax as per Statement of |
|
|
Profit & Loss |
4,50,000 |
|
Tax |
1,50,000 |
|
Market Price of the Share |
34 |
Debt-Equity ratio is a measure of :
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Solvency of business
The debt-equity ratio compares long-term debt with shareholders’ funds. It shows how safe the long-term lenders are, that is, whether the business can pay interest and repay the principal in the long run. That is solvency, and the debt-equity ratio is the first of the solvency ratios in the book.
Option (1) Profitability of business — Incorrect. Profitability is measured by ratios such as gross profit ratio, net profit ratio and return on investment.
Option (2) Liquidity position of business — Incorrect. Liquidity (short-term solvency) is measured by the current ratio and the liquid ratio.
Option (3) Efficiency in use of business resources — Incorrect. Efficiency is measured by activity (turnover) ratios.
Option (4) Solvency of business — Correct. It is a long-term solvency ratio.
NCERT (2026-27 edition):
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