The correct answer is: C. Higher operating ratio indicates higher profits.
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 higher operating ratio indicates that a company is spending more money on its operations than it is generating in revenue. This could be a sign that the company is not managing its costs effectively or that its sales are not growing.
A higher operating ratio does not necessarily mean that a company is making more profits. In fact, it could be a sign that the company is losing money. A company with a high operating ratio should take steps to reduce its costs or increase its revenue.
Here is a brief explanation of each option:
- Option A is true. Conversion of debentures into preference shares will decrease debt-equity ratio. This is because debentures are a type of debt financing, while preference shares are a type of equity financing. When debentures are converted into preference shares, the amount of debt on the company's balance sheet will decrease, which will lower its debt-equity ratio.
- Option B is true. Long-term liabilities due for payment within a year should be treated as current liabilities. This is because these liabilities will need to be paid off within the next year, so they should be included in the company's current liabilities.
- Option C is false. Higher operating ratio does not indicate higher profits. In fact, it could be a sign that the company is losing money. A company with a high operating ratio should take steps to reduce its costs or increase its revenue.
- Option D is true. Cost of sales is a better numerator than sales while calculating stock turnover. This is because cost of sales is a more accurate measure of the cost of goods sold. Sales can be affected by factors such as discounts and returns, which can make them an inaccurate measure of the cost of goods sold.
