Financial Statements

Ratios

Medium

Financial Statements

The current ratio is 2 : 1. Which of the following transaction would improve current ratio of a company?

Sale of merchandise (goods) costing Rs. 70,000 for Rs. 71,000

Purchase of goods of Rs. 60,000 on credit

Cash received from trade receivables

Conversion of 5% Preference Shares into 12% Debebtures

✅ Correct Option: 1

Selling goods at a profit replaces inventory with a larger amount of cash or debtors, so current assets rise by the 1,000 profit while current liabilities are unchanged, improving the ratio. Credit purchase pulls a $2:1$ ratio down, collection from debtors only reshuffles current assets, and converting shares into debentures does not touch current items.

2023: 11 June Shift 3

What will be Interest Coverage Ratio, when 20% Long term Debt is Rs. 10,00,000, Tax Rate 40% and Net profit After Tax is Rs. 6,00,000.

2026: 23 May Shift 2

The current ratio is 2 : 1. Identify which of the following transactions would improve, reduce and not change the current ratio. Match the LIST-I with LIST-II

LIST-I		LIST-II
A.	Payment of current liability	I. Current ratio will reduce
B.	Sold goods on credit	II. Current ratio will improve
C.	Purchased goods on credit	III. No change in current ratio

Choose the correct answer from the options given below:

2025: 22 May Shift 2

Match List-I with List-II:

List-I	List-II
(Ratio)	(Formula)
(A) Current ratio	(I) Market Price of a share/EPS
(B) Operating Margin Ratio	(II) Current Assets/Current Liabilities
(C) Return on Capital employed	(III) 100 - Operating Ratio
(D) Price earning ratio	(IV) Profit before interest and tax/Capital employed X 100

Choose the correct answer from the options given below:

2026: 29 May Shift 2

__________ are especially interested in the average payment period, since it provides them with a sense of the bill-paying patterns of the firm.

2026: 13 May Shift 2

The higher current ratio is not a symbol of strength of a firm, rather it is the sign of:

2022: 8 Aug Shift 2

Which one higher ratio is not favourable?

The current ratio is 2 : 1. Which of the following transaction would improve current ratio of a company?

Solution

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