Question

Assertion (A): Profitability ratios are calculated to analyse the combining capacity of the business.

Reason (R): Profitability ratios are calculated to determine the ability of the business to service its debt in the long run.

In the light of the above two statements, which of the following is correct:

Options

• Both (A) and (R) are correct.

• Both (A) and (R) are wrong.

• (A) is correct but (R) is wrong.

• (A) is wrong but (R) is correct.

Answer 1

(A) is correct but (R) is wrong.

Explanation:

Solvency ratios are computed to assess a company's long-term capacity to pay down debt.