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Accountancy · 2023 · 3 marks
CBSE 2023 · Region 4 · Set 3 · Q32
'These ratios are calculated to analyse the earning capacity of the business which is the outcome of utilisation of resources employed in the…
'These ratios are calculated to analyse the earning capacity of the business which is the outcome of utilisation of resources employed in the business.' (i) Identify the types of ratios being discussed above. (ii) Explain any two ratios of the type of ratios identified in (i) above.
Marking-scheme solution
(a)
Profitability ratios
(b)
Any two of the following:
1. Gross Profit Ratio
• Gross profit ratio as a percentage of revenue from operations is computed to have an
idea about gross margin.
• Gross Profit Ratio = Gross Profit/Net Revenue of Operations × $\displaystyle 100$
2. Operating Ratio
• Operating ratio is computed to express cost of operations excluding financial charges
in relation to revenue from operations.
• Operating Ratio = Operating Cost/ Revenue from Operations × $\displaystyle 100$
3. Operating Profit Ratio
• It is calculated to reveal operating margin and throws light on the operational
efficiency of the business.
• It may be computed directly or as a residual of operating ratio.
➢ Operating Profit Ratio = $\displaystyle 100$ – Operating Ratio
➢ Operating Profit Ratio = Operating Profit/ Revenue from Operations × $\displaystyle 100$
4. Net Profit Ratio
• It is a measure of net profit margin in relation to revenue from operations.
• Net Profit Ratio = Net profit/Revenue from Operations × $\displaystyle 100$
5. Return on Capital Employed or Investment
• It reveals the efficiency of the business in utilisation of funds entrusted to it by
shareholders, debenture-holders and long-term loans.
• Return on Investment (or Capital Employed)
= Profit before Interest and Tax/ Capital Employed × $\displaystyle 100$
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CBSE Class 12 Accountancy past-paper question from the 2023 board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.