(i) Nature of a business makes inventory turnover ratio more important in case of a grocery store as compare to an insurance company.
(ii) A grocery store is a trading concern involved in trading. On the other hand, insurance company is involved in service business and involved in delivering service, so there is no question of inventory because service is perishable in nature and cannot be stored.

Accounting ratio are calculated from financial statements which are drawn on the basis of historical costs as recorded in the books of accounts. Thus. these ratios ignore the change in price level and they do not reflect the actual analysis.

Current ratio gives the proportion of current assets to current liabilities of a business concern. It is computed by dividing current assets by current liabilities. It is calculated as follows:
Current ratio = \(\frac{Current assets}{Current liabilities}\).

Liquidity means capability of being converted into cash with ease. Liquidity ratios help to assess the ability of a business concern to meet its short term financial obligations. Liquidity ratios are also called as short term solvency ratios.

Capital gearing ratio = \(\frac{Funds\ bearing\ fixed\ interest\ and\ fixed\ dividend}{Equity\ shareholders'funds}\)
= \(\frac{3,00,000}{4,00,000}\) = 0.75:1
Funds bearing fixed interest and dividend = 6% Preference share capital + 8% Debentures
= 1,00,000 + 2,00,000 = Rs.3,00,000
Equity shareholder’s funds = Equity share capital + General reserve + Surplus
= 2,00,000 + 1,25,000 + 75,000 = Rs.4,00,000

Quick ratio = \(\frac{Quick\ assets}{Current\ liabilities}\) = \(\frac{1,85,000}{1,00,000}\) = 1.85:1
Quick assets = Current assets – Inventories – Prepaid expenses
= 2,50,000 – 50,000 – 15,000
= Rs.1,85,000

Current ratio = \(\frac{Current\ assets}{Current\ liabilities}\) = \(\frac{8,00,000}{4,00,000}\) = 2:1
Current assets = Current investments + Inventories + Trade receivables + Cash and cash equivalents + Prepaid expenses
= 80,000 + 1,60,000 + 4,00,000 + 1,20,000 + 40,000 = Rs.8,00,000
Current liabilities = Trade creditors + Bills payable + Expenses payable
= 1,60,000 + 1,00,000 + 1,40,000 = Rs.4,00,000
(ii) Quick ratio
Quick ratio gives the proportion of quick assets to current liabilities. It indicates whether the business concern is in a position to pay its current liabilities as and when they become due, out of its quick assets. Quick assets are current assets excluding inventories and prepaid expenses. It is otherwise called liquid ratio or acid test ratio. It is calculated as follows:
Quick ratio = \(\frac{Quick\ assets}{Current\ liabilities}\)
Quick assets = Current assets – Inventories – Prepaid expenses
Higher the quick ratio, better is the short-term financial position of an enterprise.

(i) Ratios are only means: Ratios are not end in themselves but they are only means to achieve a particular purpose.
(ii) Accuracy of financial information : The accuracy of a ratio depends on the accuracy of information taken from financial statements.

(i) Return on investment shows the proportion of net profit. before interest and tax to capital employed (shareholders' funds and long term debts).
(ii) This ratio measures how efficiently the capital employed is used in the business.
(iii) It is an overall measure of profitability of a business concern.
(iv) It is computed as below: Return on Investment (ROI)
= \(\frac { Net\ profit\ before\ interest\ and\ tax }{ Capital\ employed } \) x 100
​​​​​​​Capital employed = Share holder's fund + Non currebt liablities greater the return on investment better is the profitability of a business and vice versa

(i) Debt equity ratio is calculated to assess the long term solvency position of a business concern.
(ii) Debt equity ratio expresses the relationship between long term debt and shareholders' funds.
(iii) It is computed as follows:
Debt enquity ratio = \(\frac { Long\ term\ debt }{ Shareholders\ funds } \)
Long term debt = Debentures, bonds, long term loans, other long term borrowing. Share holder's fund = Equity share capital + Preference share capital + reserves and surplus

(i) Quick ratio gives the proportion of quick assets to current liabilities.
(ii) It indicates whether the business concern is in a position to pay its current liabilities as and when they become due, out of its quick assets.
(iii) It is otherwise called liquid ratio or acid test ratio.
(iv) It is calculated as follows:
Quick ratio = \(\frac { Quick\ assets }{ Current\ liabilities } \).
Quick assets = Current assets - Inventries - prepaid expenses. higher the Quick ratio better is the short - term financial position of an enterprises.  

(i) Ratio is a mathematical expression of relationship between two related or interdependent items.
(ii) It is the numerical or quantitative relationship between two items
(iii) It is calculated by dividing one item by the other related item.
(iv) When ratios are calculated on the basis of accounting information, these are called 'accounting ratios'.

Proprietary ratio = \(\frac{Shareholders ' funds}{Total assets}\) = \(\frac{2,00,000}{4,00,000}\) = 0.5:1
Shareholders’ funds = Equity share capital + Preference share capital + Reserves and surplus
= 1,00,000 + 75,000 + 25,000
= Rs. 2,00,000
(iii) Capital gearing ratio
Proprietary ratio gives the proportion of shareholders’ funds to total assets. Proprietary ratio shows the extent to which the total assets have been financed by the shareholders’ funds. It is calculated as follows:
Capital gearing ratio = \(\frac{Funds\ bearing\ fixed\ interest\ or\ fixed\ dividend}{Equity\ shareholders'\ funds}\)

Capital gearing ratio is a measure of long term solvency as well as capital structure. When thecapital gearing ratio is greater than one, the firm is said to be high geared.

Debt equity ratio = \(\frac{Long\ term\ debt}{Shareholders'funds}\) = \(\frac{80,000}{1,60,000}\) = 0.5:1
Long term debt = Debentures = Rs.80,000
Shareholders’ funds = Equity share capital + Reserves and surplus
= 1,00,000 + 60,000 = Rs.1,60,000
(ii) Proprietary ratio
Proprietary ratio gives the proportion of shareholders’ funds to total assets. Proprietary ratio shows the extent to which the total assets have been financed by the shareholders’ funds. It is calculated as follows:
Proprietary ratio = \(\frac{Shareholders'funds}{Total\ assets}\)
Higher the proprietary ratio, greater is the satisfaction for lenders and creditors, as the firm is less dependent on external sources of finance.

(i) Current ratio = \(\frac{Current assets}{Current liabilities}\) = \(\frac{1,50,000}{50,000}\) = 3:1
Current assets = Inventories + Trade receivables + Cash and cash equivalents + Prepaid expenses
= 45,000 + 70,000 + 30,000 + 5,000 = Rs.1,50,000
Current liabilities = Short term borrowings + Trade payables + Expenses payable + Short term provisions
= 17,000 + 25,000 + 3,000 + 5,000 = Rs.50,000
(ii) Quick ratio = \(\frac{Quick assets}{Current liabilities}\) = \(\frac{1,00,000}{50,000}\) = 2:1
Quick assets = Total current assets – Inventories – Prepaid expenses
= 1,50,000 – 45,000 – 5,000 = Rs.1,00,000