Question:
Ratios that are calculated for measuring the efficiency of operations of business based on effective utilisation of resources are called:
Ratios that are calculated for measuring the efficiency of operations of business based on effective utilisation of resources are called:
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Efficiency of operations through effective use of resources is shown by turnover (activity) ratios, such as inventory turnover.
Updated On: Oct 26, 2026
- Turnover ratios
- Profitability ratios
- Solvency ratios
- Liquidity ratios
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The Correct Option is A
Solution and Explanation
Step 1: Meaning:
Ratios that show how well a business uses its resources, such as inventory, receivables and assets, to earn revenue are called turnover ratios. They are also known as activity ratios.
Examples are inventory turnover, trade receivables turnover and trade payables turnover.
Step 2: Match with the options:
(A) Turnover ratios measure the efficiency of operations through effective use of resources. This is correct.
(B) Profitability ratios measure profit earned, so they do not fit.
(C) Solvency ratios measure the long-term ability to pay debts, so they do not fit.
(D) Liquidity ratios measure the ability to pay short-term dues, so they do not fit.
Final Answer:
Ratios that measure the efficiency of operations based on use of resources are turnover ratios. This is option (A).
Ratios that show how well a business uses its resources, such as inventory, receivables and assets, to earn revenue are called turnover ratios. They are also known as activity ratios.
Examples are inventory turnover, trade receivables turnover and trade payables turnover.
Step 2: Match with the options:
(A) Turnover ratios measure the efficiency of operations through effective use of resources. This is correct.
(B) Profitability ratios measure profit earned, so they do not fit.
(C) Solvency ratios measure the long-term ability to pay debts, so they do not fit.
(D) Liquidity ratios measure the ability to pay short-term dues, so they do not fit.
Final Answer:
Ratios that measure the efficiency of operations based on use of resources are turnover ratios. This is option (A).
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