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If Activity Ratio of a firm is 80% and capacity ratio is 120%, find out its efficiency ratio.

This question was previously asked in
UGC Paper 2: Commerce_17th Oct 2020 Shift 2
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  1. 150%
  2. 100%
  3. 80%
  4. 66.67%

Answer (Detailed Solution Below)

Option 4 : 66.67%
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UGC NET Paper 1: Held on 21st August 2024 Shift 1
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Detailed Solution

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An activity ratio is a type of financial metric that indicates how efficiently a company is leveraging the assets on its balance sheet, to generate revenues and cash. Commonly referred to as efficiency ratios, activity ratios help analysts gauge how a company handles inventory management, which is key to its operational fluidity and overall fiscal health.

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Activity Ratio = Capacity Ratio x Efficiency Ratio

Efficiency Ratio = Activity Ratio / Capacity Ratio

∴ Efficiency Ratio = 80 / 120

∴ Efficiency Ratio = 66.67%

Thus, option 4 is the correct answer.

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