Match List-I with List-II
List-I (Accounting Ratio)
(A) Liquidity Ratio
(B) Profitability Ratio
(C) Solvency Ratio
(D) Activity Ratio
List-II (Objectives/ Use of Accounting Ratio)
(I) To know the earning capacity of the business
(II) To know the ability to pay long-term obligations
(III) To know the efficiency of business operations
(IV) To know the ability to pay short-term obligations
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (A) - (IV), (B) - (I), (C) - (II), (D) - (III)
Accounting ratios are grouped by the purpose for which they are worked out.
(A) Liquidity Ratio — this matches (IV) To know the ability to pay short-term obligations. Liquidity ratios such as the current ratio and quick ratio compare current assets with current liabilities, so they are short-term in nature.
(B) Profitability Ratio — this matches (I) To know the earning capacity of the business. These ratios relate profit to revenue from operations or to the funds employed, for example the gross profit ratio and return on investment.
(C) Solvency Ratio — this matches (II) To know the ability to pay long-term obligations. Solvency ratios such as the debt-equity ratio show whether the business can meet its long-term commitments, so they are long-term in nature.
(D) Activity Ratio — this matches (III) To know the efficiency of business operations. Activity or turnover ratios, such as the inventory turnover ratio, measure how well resources are used, and are also called efficiency ratios.
NCERT (2026-27 edition): |