Every company analyses its earning capacity of the business which is an outcome of utilisation of resources employed in the business. To analyse profitability, a company can use:A. Dividend Payout RatioB. Return on Net WorthC. Gross Profit RatioD. Quick RatioE. Inventory Turnover RatioChoose the correct answer from the options given below:
- AC and E only
- BC, D and E only
- CA, B and C only
- DA, C and E only
Solution & Step-by-step Explanation
Let's break down the ratios by their accounting classifications:Profitability Ratios: These measure the operating efficiency and earning capacity of a business. This includes Dividend Payout Ratio (A), Return on Net Worth (B), and Gross Profit Ratio (C).Liquidity Ratios: Quick Ratio (D) measures short-term solvency.Activity/Efficiency Ratios: Inventory Turnover Ratio (E) measures how efficiently inventory is managed.Therefore, metrics A, B, and C are utilized explicitly to evaluate profitability.