Accounting Ratios — Class 12 (DK Goel) 2026-27
Eight medium-difficulty multiple-choice questions on key accounting ratios from DK Goel Class 12, focusing on concepts, application, and interpretation.
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Quiz Questions & Answers
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Question 1: What is the primary purpose of the Current Ratio in financial analysis?
Measure short-term liquidity to meet current obligations
Assess profitability per unit of sales
Evaluate long-term solvency and debt structure
Determine market value of equity
Question 2: If a firm's Quick Ratio is much lower than its Current Ratio, what high-leverage insight does this reveal?
High retained earnings relative to current liabilities
A heavy dependence on inventory to meet short-term obligations
An understated sales figure in the income statement
Excessive fixed assets financed by short-term debt
Question 3: Which ratio best indicates how efficiently management uses shareholders' equity to generate profit?
Gross Profit Ratio
Current Ratio
Debt-Equity Ratio
Return on Equity (ROE)
Question 4: A company has rising Inventory Turnover over several periods. Which likely positive consequence follows?
Increased fixed asset utilization
Longer cash conversion period
Improved inventory management and reduced holding costs
Guaranteed higher net profit margin
Question 5: Which ratio combination best signals a conservative capital structure?
Low Debt-Equity Ratio and high Interest Coverage Ratio
High Current Ratio and low Gross Profit Ratio
Low Return on Assets and high Quick Ratio
High Debt-Equity Ratio and low Inventory Turnover
Question 6: How does the Earnings Per Share (EPS) ratio change if net profit increases while number of outstanding shares remains constant?
EPS becomes negative regardless of profit increase
EPS increases proportionally with net profit rise
EPS decreases because profit growth lowers per-share value
EPS remains unchanged
Question 7: Which common myth about the Debt-Equity Ratio is challenged by careful interpretation?
Equity should always be greater than debt by law
Debt-equity ratio measures profitability directly
Higher debt always means the company is risky
Debt-equity ratio is irrelevant for lenders
Question 8: In a scenario where Receivables Turnover falls but Sales are steady, what actionable interpretation should management consider?
Tighten credit policy or improve collection processes
Increase inventory purchases to absorb cash
Delay paying suppliers to balance cash flow
Lower product prices to boost turnover