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) 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'.