Q.1 Which of the following ratios is considered a measure of liquidity?
Debt-Equity Ratio
Current Ratio
Return on Equity
Earnings Per Share
Explanation - Current Ratio measures a firm's ability to meet short-term obligations using its current assets.
Correct answer is: Current Ratio
Q.2 The formula for Quick Ratio is:
(Current Assets - Inventory) / Current Liabilities
Current Assets / Current Liabilities
Cash / Total Liabilities
Current Liabilities / Current Assets
Explanation - Quick Ratio excludes inventory since it may not be easily converted into cash quickly.
Correct answer is: (Current Assets - Inventory) / Current Liabilities
Q.3 A Debt-Equity Ratio of 2:1 means:
Debt is twice the equity
Equity is twice the debt
Debt and equity are equal
There is no debt
Explanation - A 2:1 ratio indicates that for every ₹1 of equity, the firm has ₹2 of debt.
Correct answer is: Debt is twice the equity
Q.4 Which ratio is known as the Acid-Test Ratio?
Quick Ratio
Current Ratio
Debt-Equity Ratio
Gross Profit Ratio
Explanation - The Acid-Test Ratio is another name for the Quick Ratio.
Correct answer is: Quick Ratio
Q.5 What does a Current Ratio of less than 1 indicate?
Company has more liabilities than current assets
Company is highly profitable
Company has no debt
Company has surplus cash
Explanation - A ratio below 1 suggests liquidity problems as liabilities exceed assets.
Correct answer is: Company has more liabilities than current assets
Q.6 Which of the following is a profitability ratio?
Return on Assets
Quick Ratio
Current Ratio
Debt-Equity Ratio
Explanation - Profitability ratios measure how well a company generates profits; ROA is one such ratio.
Correct answer is: Return on Assets
Q.7 Inventory Turnover Ratio is calculated as:
Cost of Goods Sold / Average Inventory
Sales / Total Assets
Net Profit / Net Sales
Current Assets / Current Liabilities
Explanation - It measures how quickly inventory is sold and replaced during a period.
Correct answer is: Cost of Goods Sold / Average Inventory
Q.8 High Inventory Turnover Ratio indicates:
Efficient inventory management
Overstocking of goods
Liquidity problems
High debt levels
Explanation - A high ratio shows that inventory is sold quickly, reducing holding costs.
Correct answer is: Efficient inventory management
Q.9 The formula for Earnings Per Share (EPS) is:
Net Profit / Number of Equity Shares
Net Profit / Total Assets
Net Sales / Total Shares
Gross Profit / Equity Capital
Explanation - EPS shows profit available per share of equity.
Correct answer is: Net Profit / Number of Equity Shares
Q.10 Which ratio shows the ability of a business to meet its long-term obligations?
Liquidity Ratio
Solvency Ratio
Activity Ratio
Profitability Ratio
Explanation - Solvency Ratios measure long-term financial stability and debt-paying ability.
Correct answer is: Solvency Ratio
Q.11 The Operating Profit Ratio is expressed as:
Operating Profit / Net Sales × 100
Net Profit / Capital Employed × 100
Gross Profit / Net Sales × 100
Net Sales / Operating Profit × 100
Explanation - It measures operating efficiency by relating operating profit to sales.
Correct answer is: Operating Profit / Net Sales × 100
Q.12 If the Current Ratio is 2:1, it means:
Current assets are twice current liabilities
Current liabilities are twice current assets
Assets and liabilities are equal
No current liabilities exist
Explanation - The ratio indicates current assets are double the obligations due within a year.
Correct answer is: Current assets are twice current liabilities
Q.13 Which ratio is also called the Proprietary Ratio?
Equity to Total Assets
Debt-Equity Ratio
Quick Ratio
Gross Profit Ratio
Explanation - Proprietary Ratio is the proportion of shareholders’ equity to total assets.
Correct answer is: Equity to Total Assets
Q.14 Return on Equity (ROE) shows:
Profit earned on shareholders' funds
Liquidity position
Inventory efficiency
Solvency position
Explanation - ROE measures profitability in relation to shareholders’ equity.
Correct answer is: Profit earned on shareholders' funds
Q.15 Gross Profit Ratio is calculated as:
(Gross Profit / Net Sales) × 100
(Net Profit / Net Sales) × 100
(Gross Profit / Total Assets) × 100
(Net Profit / Capital Employed) × 100
Explanation - This ratio shows the profitability of core trading operations.
Correct answer is: (Gross Profit / Net Sales) × 100
Q.16 If Working Capital is negative, it means:
Current liabilities exceed current assets
Company is highly solvent
Assets are debt-free
Profits are rising
Explanation - Negative working capital indicates liquidity problems.
Correct answer is: Current liabilities exceed current assets
Q.17 Which ratio measures the efficiency of utilizing fixed assets?
Fixed Asset Turnover Ratio
Current Ratio
Quick Ratio
Debt-Equity Ratio
Explanation - It shows how well fixed assets are used to generate sales.
Correct answer is: Fixed Asset Turnover Ratio
Q.18 Net Profit Ratio is calculated as:
Net Profit / Net Sales × 100
Net Sales / Net Profit × 100
Net Profit / Total Assets × 100
Net Profit / Capital Employed × 100
Explanation - It indicates the profitability after all expenses and taxes.
Correct answer is: Net Profit / Net Sales × 100
Q.19 Which of the following ratios is used by shareholders to assess returns?
Earnings Per Share
Current Ratio
Inventory Turnover
Debt Ratio
Explanation - EPS shows shareholders the profit earned per equity share.
Correct answer is: Earnings Per Share
Q.20 High Debt-Equity Ratio indicates:
Company is highly leveraged
Company has surplus equity
Company is very liquid
Company is debt-free
Explanation - It shows more reliance on borrowed funds than equity.
Correct answer is: Company is highly leveraged
Q.21 Liquidity Ratios include:
Current Ratio and Quick Ratio
Debt Ratio and Equity Ratio
EPS and ROE
Inventory Turnover and Asset Turnover
Explanation - Liquidity Ratios measure short-term financial obligations.
Correct answer is: Current Ratio and Quick Ratio
Q.22 What does a higher Return on Assets (ROA) indicate?
Efficient use of assets
High liquidity risk
High debt levels
Overvalued assets
Explanation - Higher ROA shows better efficiency in generating profits from assets.
Correct answer is: Efficient use of assets
Q.23 If Sales = ₹500,000 and Average Inventory = ₹50,000, Inventory Turnover Ratio is 10, then Cost of Goods Sold is:
₹500,000
₹450,000
₹600,000
₹200,000
Explanation - Inventory Turnover Ratio = COGS / Average Inventory → COGS = 10 × 50,000 = ₹500,000.
Correct answer is: ₹500,000
Q.24 Price-Earnings (P/E) Ratio is expressed as:
Market Price per Share / Earnings Per Share
Earnings Per Share / Market Price per Share
Net Profit / Net Sales
Net Sales / Equity Capital
Explanation - P/E Ratio shows how much investors are willing to pay for each rupee of earnings.
Correct answer is: Market Price per Share / Earnings Per Share
Q.25 Which of the following is an Activity Ratio?
Inventory Turnover
Current Ratio
Debt-Equity Ratio
Quick Ratio
Explanation - Activity Ratios measure efficiency in asset utilization; Inventory Turnover is one of them.
Correct answer is: Inventory Turnover