Question

Higher the ratio, the more favourable it is, does not stand true for ______.

Options

• Operating ratio

• Liquidity ratio

• Net profit ratio

• Inventory Turnover Ratio.

Answer 1

Higher the ratio, the more favourable it is; does not stand true for operating ratio.

Explanation:

The Operating Ratio expresses a company’s day-to-day operating costs as a percentage of its net sales. A higher operating ratio means a larger portion of revenue is eaten up by expenses, which leaves less profit margin for the business. Therefore, a lower operating ratio is preferred because it indicates better cost control. For liquidity, net profit, and inventory turnover, a higher value is always considered favourable as it signifies stronger short-term financial coverage, larger profit margins, or faster product sales, respectively.