Multiple choice

Which one of the following is correct? (i) A ratio is an arithmetical relationship of one number to another number. (ii) Liquid ratio is also known as acid test ratio. (iii) Rule of thumb for current ratio is 2 : 1. (iv) Debt equity ratio is the relationship between outsiders' fund and shareholders' fund.

  1. All (i), (ii), (iii) and (iv) are correct.

  2. Only (i), (ii) and (iii) are correct.

  3. Only (ii), (iii) and (iv) are correct.

  4. Only (ii) and (iii) are correct.
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A Correct answer
Explanation

All four statements are correct. A ratio compares two quantities arithmetically. Liquid ratio is the acid-test ratio (excluding inventory). The 2:1 rule is a benchmark for current ratio. Debt-equity ratio compares external funds to shareholders' funds.

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