Match the LIST-I with LIST-IILIST-ILIST-IIA.Liquidity Ratio(s)I.Measu…

Match the LIST-I with LIST-II

LIST-I		LIST-II
A.	Liquidity Ratio(s)	I.	Measure long term financial stability
B.	Solvency Ratio(s)	II.	Measure to analyse the earning capacity
C.	Profitability Ratio(s)	III.	Measure ability to pay short-term obligation
D.	Activity Ratio (s)	IV.	Measure utilisation of resources

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → A-III, B-I, C-II, D-IV

Accounting ratios are grouped by what they measure: short-term solvency, long-term solvency, the use of resources and the earning capacity of the business.

(A) Liquidity Ratio(s) — this matches (III) Measure ability to pay short-term obligation. Liquidity ratios such as the current ratio and the quick ratio measure the short-term solvency of the business, its ability to meet current liabilities.

(B) Solvency Ratio(s) — this matches (I) Measure long term financial stability. Solvency ratios such as the debt-equity ratio show the ability to service debt in the long run.

(C) Profitability Ratio(s) — this matches (II) Measure to analyse the earning capacity. Profitability ratios such as the net profit ratio analyse the earning capacity of the business.

(D) Activity Ratio (s) — this matches (IV) Measure utilisation of resources. Activity or turnover ratios show how efficiently the resources are used to generate sales, such as the inventory turnover ratio.

NCERT (2026-27 edition):
Types of Ratios – “… Liquidity Ratios: To meet its commitments, business needs liquid funds. The ability of the business to pay the amount due to stakeholders as and when it is due is known as liquidity, and the ratios calculated to measure it are known as ‘Liquidity Ratios’. These are essentially short-term in nature. Solvency Ratios: Solvency of business is determined by its ability to meet its contractual obligations towards stakeholders, particularly towards external stakeholders, and the ratios calculated to measure solvency position are known as ‘Solvency Ratios’. These are essentially long-term in nature. Activity (or Turnover) Ratios: This refers to the ratios that are calculated for measuring the efficiency of operations of business based on effective utilisation of resources. Hence, these are also known as ‘Efficiency Ratios’. Profitability Ratios: It refers to the analysis of profits in relation to revenue from operations or funds (or assets) employed in the business and the ratios calculated to meet this objective are known as ‘Profitability Ratios’.”