Q1. [2]
The long-term financial strength of a firm is assessed by its capacity to consistently pay interest and to repay principal amounts on specified due dates or at maturity. Identify such ratios and give two examples of these ratios.
Previously asked in CBSE board exam
2026 92 Q16
Generated by claude-sonnet-4-6 · 2026-06-15 07:07 · grounding rag
Model Answer
The ratios described are Leverage/Capital Structure Ratios. They measure a firm's long-term solvency — its ability to pay interest regularly and repay principal on due dates.
Two examples:
- Debt-Equity Ratio = Total Debt / Total Equity
- Interest Coverage Ratio = EBIT / Interest
Source: Chapter 10, Leverage/Capital Structure Ratios
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Explanation
- The question has two parts: identify the ratio type (1 mark) and give two examples (1 mark). Name the category clearly, then list two distinct ratios with their formulas for full credit.
- Examiners accept any two from: Debt-Equity Ratio, Debt-Asset Ratio, Interest Coverage Ratio, DSCR. Formulas are expected for examples in this context.
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