Question

Assertion (A): Long-term financial position of a firm is assessed from Liquidity Ratios.

Reason (R): Liquidity Ratios, i.e., Current Ratio and Quick Ratio help in assessing Short-term financial position of the firm.

In the context of the above two statements, which option is correct?

विकल्प

• Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).

• Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (А).

• Assertion (A) is correct, and Reason (R) is incorrect.

• Assertion (A) is not correct, but Reason (R) is correct.

Answer 1

Assertion (A) is not correct, but Reason (R) is correct.

Explanation:

Assertion (A) is incorrect because a firm’s long-term financial position is assessed using solvency ratios (such as the Debt-Equity Ratio), not liquidity ratios. Reason (R) is correct because liquidity ratios, like the Current Ratio and Quick Ratio, are explicitly designed to evaluate the short-term financial position and immediate debt-clearing ability of a business. Therefore, the assertion is false while the reason is factually true.