Accounting Ratio
• Current ratio is the relationship between
current assets and current liabilities.
• Quick assets= Current assets- Inventory-
Prepaid expenses :- True.
• Write two limitation of ratio analysis?
Ans:- Limitations of a single ratio.
Difficult to evolve a standard ratio.
• Liquid ratio is the relationship between liquid
assets and current assets.
• What is ratio analysis?
Ans:- It is the process of identifying strengths
and weaknesses of the enterprise by logically
establishing the significant relationship
between the items of income statement or
balance sheet or both to provide a meaningful
understanding of the financial performance
and position of an enterprise.
• Briefly explain the meaning and significance of
any two of the following ratio:-
a. Debt equity ratio:- Its indicates the extent to
which the business is reliant on debt financing.
Significance:-
Its measures the relationship between long
term debt and shareholder’s funds.
b. Gross profit loss:- Its uses to measures a
company’s profitability by showing the
, percentage of revenue left after subtracting
the cost of goods sold.
Significance:- Its significance lies in indicating
a company’s core operational efficiency,
pricing strategies, and ability to control
production cost.
c. Quick ratio:- Its indicate whether the firm is
in a position to pay its current liabilities within
a month or within a short period.
Significance:- Its significance lies in its strict
measurement of a company’s ability to pay
short term debts using only its most liquid
assets, excluding inventory and prepaid
expenses.
d. Stock turnover ratio:- Its indicate the speed
at which the inventory is turned into revenue
from operations(sales).
Significance:- Its measures the speed of
conversion of inventory into sales.
• Mention any three uses of ratio analysis?
Ans:- Three uses of ratio analysis are:-
a. Performance Evaluation.
b. Financial health and risk assessment.
c. Benchmarking and strategic decision
making.
• What are profitability ratio? What is the
significance of gross and operating profit
ratio?
• Current ratio is the relationship between
current assets and current liabilities.
• Quick assets= Current assets- Inventory-
Prepaid expenses :- True.
• Write two limitation of ratio analysis?
Ans:- Limitations of a single ratio.
Difficult to evolve a standard ratio.
• Liquid ratio is the relationship between liquid
assets and current assets.
• What is ratio analysis?
Ans:- It is the process of identifying strengths
and weaknesses of the enterprise by logically
establishing the significant relationship
between the items of income statement or
balance sheet or both to provide a meaningful
understanding of the financial performance
and position of an enterprise.
• Briefly explain the meaning and significance of
any two of the following ratio:-
a. Debt equity ratio:- Its indicates the extent to
which the business is reliant on debt financing.
Significance:-
Its measures the relationship between long
term debt and shareholder’s funds.
b. Gross profit loss:- Its uses to measures a
company’s profitability by showing the
, percentage of revenue left after subtracting
the cost of goods sold.
Significance:- Its significance lies in indicating
a company’s core operational efficiency,
pricing strategies, and ability to control
production cost.
c. Quick ratio:- Its indicate whether the firm is
in a position to pay its current liabilities within
a month or within a short period.
Significance:- Its significance lies in its strict
measurement of a company’s ability to pay
short term debts using only its most liquid
assets, excluding inventory and prepaid
expenses.
d. Stock turnover ratio:- Its indicate the speed
at which the inventory is turned into revenue
from operations(sales).
Significance:- Its measures the speed of
conversion of inventory into sales.
• Mention any three uses of ratio analysis?
Ans:- Three uses of ratio analysis are:-
a. Performance Evaluation.
b. Financial health and risk assessment.
c. Benchmarking and strategic decision
making.
• What are profitability ratio? What is the
significance of gross and operating profit
ratio?
