Accounting Ratios
Himachal Pradesh Board · Class 12 · Accountancy
Flashcards for Accounting Ratios — Himachal Pradesh Board Class 12 Accountancy. Quick Q&A cards covering key concepts, definitions, and formulas.
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See them allWhat is an Accounting Ratio? Define and give an example.
Answer
An Accounting Ratio is a mathematical number calculated as a reference to relationship of two or more accounting numbers derived from financial statements. It can be expressed as a fraction, proportio…
List the four main objectives of Ratio Analysis.
Answer
1. To identify areas of business that need more attention 2. To identify potential areas for improvement 3. To provide deeper analysis of profitability, liquidity, solvency and efficiency 4. To provid…
What are the four functional types of ratios? Briefly explain each.
Answer
1. **Liquidity Ratios**: Measure short-term solvency (ability to meet current obligations) 2. **Solvency Ratios**: Measure long-term ability to meet contractual obligations 3. **Activity/Turnover Rati…
Calculate Current Ratio if Current Assets = Rs. 80,000 and Current Liabilities = Rs. 40,000. What does this ratio indicate?
Answer
Current Ratio = Current Assets ÷ Current Liabilities Current Ratio = 80,000 ÷ 40,000 = 2:1 **Significance**: This 2:1 ratio is considered ideal. It means current assets are twice the current liabilit…
What is Quick Ratio? How is it calculated and why is it considered better than Current Ratio?
Answer
**Quick Ratio** = Quick Assets ÷ Current Liabilities Quick Assets = Current Assets - Inventories - Prepaid Expenses - Advance Tax **Why better than Current Ratio?** - Excludes non-liquid current ass…
State the formula for Debt-Equity Ratio and explain its significance.
Answer
**Debt-Equity Ratio** = Long-term Debts ÷ Shareholders' Funds Where Shareholders' Funds = Share Capital + Reserves & Surplus + Share Application Money + Money against Share Warrants **Significance**…
What is Proprietary Ratio? Calculate it if Shareholders' Funds = Rs. 15,00,000 and Capital Employed = Rs. 20,00,000.
Answer
**Proprietary Ratio** = Shareholders' Funds ÷ Capital Employed (or Net Assets) **Calculation**: Proprietory Ratio = 15,00,000 ÷ 20,00,000 = 0.75:1 or 75% **Significance**: Higher proportion of share…
Define Inventory Turnover Ratio and state its formula.
Answer
**Inventory Turnover Ratio** determines how many times inventory is converted into revenue during an accounting period. **Formula**: Inventory Turnover Ratio = Cost of Revenue from Operations ÷ Aver…
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