Question : Assertion (R): Profitability Ratios are the indicators of the profitability of the firm. Reason (R): Profitability Ratios, i.e., Gross Profit Ratio, Operating Ratio, Operating Profit Ratio, Net Profit Ratio, and Return on Investment Ratio help in assessing the efficient use of a firm’s resources to generate profit.
Option 1: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
Option 2: Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
Option 3: Assertion (A) is true but Reason (R) is False
Option 4: Assertion (A) is False and Reason (R) is also False.
Correct Answer: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
Solution : The ability of a business to create money (profit) in relation to sales, balance sheet assets, operating costs, and shareholders' equity over a given time period is measured and evaluated by analysts and investors using profitability ratios. The utilization of a firm's resources efficiently to produce profit is evaluated with the aid of profitability ratios, such as the gross profit ratio, operating ratio, operating profit ratio, net profit ratio, and return on investment ratio. Hence option 1 is the correct answer.
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