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Mind Map: Accounting Ratios | Accountancy Class 12 - Commerce PDF Download
The document Mind Map: Accounting Ratios | Accountancy Class 12 - Commerce is a part of the Commerce Course Accountancy Class 12.
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FAQs on Mind Map: Accounting Ratios - Accountancy Class 12 - Commerce
| 1. What are accounting ratios and why are they important in commerce? |  |
Ans.Accounting ratios are numerical values derived from the financial statements of a business, used to assess its performance and financial health. They are important in commerce because they provide insights into profitability, liquidity, efficiency, and solvency, helping stakeholders make informed decisions.
| 2. What are the main types of accounting ratios? | |
Ans.The main types of accounting ratios include liquidity ratios (e.g., current ratio, quick ratio), profitability ratios (e.g., gross profit margin, net profit margin), efficiency ratios (e.g., inventory turnover, accounts receivable turnover), and solvency ratios (e.g., debt to equity ratio, interest coverage ratio). Each type serves a specific purpose in evaluating a company's financial performance.
| 3. How do you calculate the current ratio and what does it indicate? | |
Ans.The current ratio is calculated by dividing current assets by current liabilities (Current Ratio = Current Assets / Current Liabilities). It indicates a company's ability to meet its short-term obligations. A ratio above 1 suggests that the company has more current assets than current liabilities, which is generally a positive sign of liquidity.
| 4. What is the significance of the debt-to-equity ratio? | |
Ans.The debt-to-equity ratio is calculated by dividing total liabilities by shareholder equity (Debt-to-Equity Ratio = Total Liabilities / Shareholder Equity). It signifies the proportion of debt financing relative to equity financing. A higher ratio indicates greater financial leverage and risk, while a lower ratio suggests a more conservative approach to financing.
| 5. How can accounting ratios help in comparing companies? | |
Ans.Accounting ratios facilitate comparisons between companies by normalizing financial data, allowing stakeholders to assess performance relative to industry standards or competitors. This comparative analysis helps investors, analysts, and management understand a company's standing in the market and identify areas for improvement.
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Document Description: Mind Map: Accounting Ratios for Commerce 2025 is part of Accountancy Class 12 preparation.
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