Discussion
Given below are two statements :
I. Activity ratios show where the company is going.
II. Balance Sheet ratios show how the company stand.
Codes :
Answer: B
Both statements are correct, as the key gives. Activity (turnover) ratios, such as stock turnover and debtors turnover, measure how efficiently the firm is using its assets and so indicate the direction in which the business is moving. Balance sheet ratios, such as the current ratio, show the financial position of the firm as it stands on a given date.
The alternatives saying that I or II is wrong, or that both are wrong, therefore do not match the classification followed in the ratio analysis chapter of the syllabus.
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