Question

A) Equity to fixed interest - bearing securities is Acid Test Ratio.
B) Ratio analysis is a technique of planning and control.
Of these.

• A. Both (a) and (b) are true
• B. Both (a) and (b) are false
• C. (a) is true but, (b) is false
• D. (a) is false but, (b) is true

Answer 1

The correct option is B Both (a) and (b) are false

a) The acid-test, or quick ratio, compares a company's most short-term assets to its most short-term liabilities to see if a company has enough cash to pay its immediate liabilities, such as short-term debt. The acid-test ratio disregards current assets that are difficult to liquidate quickly such as inventory.

b) The purpose and importance of ratio analysis are to evaluate or analyze the financial performance of the firm in terms of Risk, Profitability, Solvency, and Efficiency. It helps us to compare the trends of two or more company over a period of time.