Question

Assertion (A): Proprietary Ratio measures the long-term solvency of the enterprise.

Reason (R): Interest Coverage Ratio is a profitability ratio.

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

Options

• Both (A) and (R) are correct and (R) is the correct reason of (A).

• Both (A) and (R) are correct but (R) is not the correct reason of (A).

• Only (A) is correct.

• Both (A) and (R) are wrong.

Answer 1

Only (A) is correct.

Explanation:

The Proprietary Ratio measures the proportion of shareholder funds in total assets, which helps in determining the business’s long-term solvency. However, the Interest Coverage Ratio is more of a solvency ratio than a profitability measure. As a result, only Assertion (A) is correct.