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    Question

    Which of the following is not correct about various

    financial ratios? i. Debt to equity ratio is a balance sheet ratio ii. Inventory turnover ratio is an income statement ratio iii. Working capital turnover ratio is a composite ratio
    A Only i Correct Answer Incorrect Answer
    B Only ii Correct Answer Incorrect Answer
    C Only iii Correct Answer Incorrect Answer
    D Only i and ii Correct Answer Incorrect Answer
    E Only ii and iii Correct Answer Incorrect Answer

    Solution

    Income statement/profit and loss ratios are those ratios that are calculated by using the items of income statement/profit and loss account of a particular period only. Eg. Net profit ratio, gross profit ratio, operating ratio, etc. Balance sheet ratios are calculated by using data from the balance sheet only. Eg. current ratio, liquid ratio, and debt to equity ratio etc. Composite ratios are calculated by using the items of both income statement and balance sheet for the same period. Eg. inventory turnover ratio, receivables turnover ratio, accounts payable turnover ratio, and working capital turnover ratio etc.

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