1. What do you understand by ratios?
                  The term ratio refers to the numerical relationship between the two items. In the word of Robert Anthony, “A ratio is simply one number expressed in terms of another”. When the ratio is expressed with reference to the items shown in the financial statement, then it is called ‘Accounting Ratios’. In other words, the ratio establish relationship between the accounting figures expressed mathematically showing a meaning relationship with each other. The ratio can be expressed in terms of percentage, proportional, times.
2. What is meant by Ratio Analysis?
                  Ratio Analysis is a process of determining and presenting the relationship of items and group of items in the Financial Statements. It involves calculations, comparison and interpretation of ratios between two or more items of financial statements for some specified purpose.
3. What do you mean by Accounting Ratio?
                 Ratios are simply a means highlighting in arithmetical terms the relationship between figures drawn from financial statements. In accounting language, it is called accounting ratios. Thus accounting ratios are relationship expressed in mathematical terms between accounting figures which have meaningful relation with each other. These relation deal with the relationship between two items appearing in the balance sheet.
4. Give an example for Accounting Ration?  
Example for ratio of
i) Current assets and current liabilities
ii) Gross profit and sales
iii) Net profit and capital etc.
Only logically relation item should be placed together for relation analysis eg. There is a clear relationship between profit & sales. No useful purpose is served if ratios are calculated between two items which are not related at all to each other eg. Purchases and securities premium.
5. Explain the various types of presentation of ratios.
        i) Pure Ratio: In this the relationship between two items is expressed in proportionate form. It is computed by dividing one items by another
        ii) Rate: It is stated in the number of item when items is compared with another items. When ratio is expressed in its form it is called as turn over.
        iii) Percentage: In this form, relationship between two item is expressed in the form of a part of 100.
6. State two objectives of Ratio Analysis.
         i) Helping in communication:
Ratio Analysis has its communicating value. The finance strength and weakness of the firm are communicated in a more easy, understandable and meaningful manner by the use of average.
            ii) Helping in efficiency appraisal:
Various activity ratios are calculated for measuring the operating efficiency of the firm which throw light on the degree of efficiency in the management and utilization of its assets and resources.
7. Mention two limitations of Ratio Analysis
           i) Limited use of single ratio:
A single ratio has limited value in ratio analysis because trens is more significant in the analysis. A change in a particular ratio is meaningful only when it is interpreted with reference to other related ratios.
          ii) Future estimates on the basis of past:
Ratios are calculated on the basis of historical figures but ratios of the past are not necessarily true on dicators of the future. Hence it is always not safe to apply past ratios for the present or failure.
8. Write down the classification of ratios from the view point of financial statement?
            i) Balance sheet Ratios:
ie proprietors ratio, corrent ratio, quick ratio, debt equity ratio, total assets to debt ratio.
            ii) Revenue statement Ratios:
Gross profit ratio, Net profit Ratio, Stock Turnover Ratio, Operating Ratio and Earning per share.
            iii) Balance sheet and Revenue statement Ratio:
Debtor’s Turnover Ratio, creditors Turnover Ratio and working capital Turnover Ratio.
9. What are the categories under which the various ratios are grouped on the basis of objectives.
             1. Liquidity Ratios, eg. Current Ratio and Quick Ratio etc.,
             2. Solvency Ratios eg. Debt Equity Ratio, Proprietary Ratio, Total Assets to Debt Ratio etc.,
             3. Profitability realize Fross profit Ratio Net profit Ratio, Operating Ratio etc.,
             4. Activity Ratio, stock Turnover Ratio, Debtors Turnover Ratio and Creditors Turnover Ratio etc.,
10. What is liquidity?
             Liquidity means the ability of the firm to meet its current liabilities or short term obligation as they fall due. Secondly liquidity is the ease with which assets may be converted into cash without loss.

11. What is mean by liquidity Ratios?
                       Try to establish relationship between current liabilities which are the obligations soon becoming due, and current assets, which presumably provide the source from which these obligations will be met. Since these ratios are used to asses the short term financial position of the business enterprise, therefore, they are also called short term solvency ratios.
12. Explain the signification of Liquity Ratios.
                  Short term henders are primarily interested in the liquidity analysis. They want to evaluate the liquidity of the enterprise with an intention to ascertain whether their short term credit will be safe. Also the management interested to know whether it will be able to honour its commitments.
13. What are the types of Liquidity ratios Give the formula.
Liquidity ratios have two parts
1. Current Ratio
2. Liquid or Quick or Acid Test Ratio.
Current Ratio formula
Current Ratio = Current Assets/Current Liabilities
Liquid or Quick or Acid Test Ratio = Liquid Asset/Current liabilities
14. What do you mean by Current Ratio?
                Current ratio shows the relationship between current assets and current liabilities. It is calculated by dividing current assets by current liabilities.
Formula:
Current Ratio = Current Assets/Current Liabilities
15. Explain the significance of current Ratio?
                A current ratio of 2:1 is generally considered to be acceptable. If the current ratio is more than 2:1, it is beneficial to the short term creditors. If the current ratio is less than 2:1, it indicates lack of liquidity and shortage of working capital.
16. What do you mean by Liquid Ratio or Quick Ratio?
                      Quick ratio is the relationship between liquid assets and current liabilities. The ratio seeks to ascertain the liquidity position of a business enterprise. Liquidity implies the ability to convert current assets into cash. This ratio is computed buy dividing liquid assets (or quick current assets) by current liabilities.
Liquid or Acid Test Ratio = Liquid Assets/Current liabilities
17. What are factors of Liquid Ratio or Quick Ratio?
                 The term ‘liquid assets’ implies current assets minus inventory or stock and prepaid expenses. The current liabilities refers all current liabilities Bank overdraft.
18. Explain the significance of Liquid Ratio?
                 Generally, a quick ratio of 1:1 or more is considered to be good for the reason that it indicates availability of funds to meet the liabilities 100%
19. Distinguish between Current Ratio and Quick Ratio

20. Current asset of company are Rs. 5,00,000 current ratio = 2.5:1 and quick ratio = 1:1. Calculate the value of current liabilities?
Solution.
Calculation of current liabilities
Current ratio = Current assets/Current liabilities
2.5 (Given) = Rs. 5,00,000(Given)/Current liabilities
Current liabilities = Rs. 5,00,000/2.5 = Rs. 2,00,000