[amp_mcq option1=”Both (A) and (R) are correct, and (R) correctly explains (A)” option2=”Both (A) and (R) are correct, but (R) does not explain (A)” option3=”Both (A)and (R) are incorrect” option4=”(A) is correct, but (R) is incorrect” correct=”option3″]
The correct answer is: C. Both (A) and (R) are incorrect.
An operating ratio is a measure of a company’s profitability. It is calculated by dividing a company’s operating expenses by its revenue. A high operating ratio indicates that a company is spending a lot of money on its operations, which may be a sign of inefficiency or poor management. A low operating ratio indicates that a company is spending less money on its operations, which may be a sign of efficiency or good management.
However, an operating ratio does not necessarily indicate a company’s financial position. A company with a high operating ratio may still be profitable if its revenue is high enough. Conversely, a company with a low operating ratio may still be unprofitable if its revenue is low enough.
Therefore, both (A) and (R) are incorrect.
Here is a brief explanation of each option:
- Option A: Both (A) and (R) are correct, and (R) correctly explains (A). This option is incorrect because, as explained above, an operating ratio does not necessarily indicate a company’s financial position.
- Option B: Both (A) and (R) are correct, but (R) does not explain (A). This option is incorrect because, as explained above, an operating ratio does not necessarily indicate a company’s financial position.
- Option C: Both (A) and (R) are incorrect. This option is correct because, as explained above, an operating ratio does not necessarily indicate a company’s financial position.
- Option D: (A) is correct, but (R) is incorrect. This option is incorrect because, as explained above, an operating ratio does not necessarily indicate a company’s financial position.