Accounting Ratios — Important Questions

Current investments, Inventories, Trade receivables, Cash and cash equivalents

Current assets include current investments, inventories, trade receivables, cash and cash equivalents, short-term loans and advances, and other current assets such as prepaid expenses and advance tax. Long-term borrowings are not current assets; they are a long-term liability. So the correct choices are the items that can be expected to be converted into cash or used in the short term.

Current Ratio, Quick Ratio

Liquidity ratios like Current Ratio and Quick Ratio measure short-term solvency. Debt-Equity Ratio measures long-term solvency, while Gross Profit Ratio measures profitability.

Gross margin on products sold

Gross Profit Ratio shows the gross margin available on products sold. It indicates the margin available to cover operating expenses and other costs. A higher ratio is always favorable.

Inventory Turnover Ratio, Trade Receivables Turnover Ratio, Fixed Assets Turnover Ratio, Working Capital Turnover Ratio

Activity ratios measure the efficiency of asset utilization. They include various turnover ratios like Inventory, Receivables, Fixed Assets, and Working Capital Turnover. Current Ratio is a liquidity ratio, not an activity ratio.