Question

Assertion (A): Operating Ratio is calculated to assess the operating efficiency of the enterprise.

Reason (R): Operating Ratio shows the percentage of Revenue from Operations absorbed as cost. If the ratio is low, it is considered to be better, as it means operating expenses are less.

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

Options

• 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

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

Explanation:

Assertion (A) is correct because the Operating Ratio is used to measure how efficiently a company runs its operations. Reason (R) is also correct and provides the right explanation because it clarifies that a lower ratio is better since it means fewer costs are absorbing your sales revenue. Because the reason directly explains how the ratio measures and reflects operational efficiency.