Multiple choice

Match the items of List - I with the items in List -II. List - I List - II (a) Capital gearing ratio (i) Profitability (b) Fixed assets turnover (ii) Short-term solvency (c) Return on equity (iii) Activity (d) Acid test (iv) Long-term solvency

  1. (a)-(iv), (b)-(iii), (c)-(i), (d)-(ii)

  2. (a)(iv), (b)-(iii), (c)-(ii), (d)-(i)

  3. (a)-(iii),(b)-(iv), (c)-(i), (d)-(ii)

  4. (a)-(iv), (b)-(i), (c)-(iii), (d)-(ii)
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A Correct answer
Explanation

Capital gearing ratio compares owner's equity to borrowed funds. It measures long term solvency of the firm. Activity ratios are accounting ratios that measure a firm's ability to convert different accounts within its balance sheets into cash or sales.  Fixed assets turnover ratio is one of the most popular activity ratio. Return on equity (ROE) is the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. The acid-test ratio is a strong indicator of whether a firm has sufficient short-term assets to cover its immediate liabilities. 

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