Cash surplus divided by net income (after tax); indicates relative amount of cash surplus achieved during a given period is:
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A. B. C. D.C
The formula provided in the question is used to calculate a financial ratio known as the Cash Surplus Ratio. This ratio indicates the relative amount of cash surplus achieved during a given period.
The numerator of the ratio is the cash surplus, which is the amount of cash left over after all expenses have been paid. The denominator is the net income after tax, which is the income left over after all taxes have been paid.
The cash surplus ratio is a liquidity ratio because it measures the company's ability to meet its short-term financial obligations. A high cash surplus ratio indicates that a company has enough cash to cover its short-term liabilities, while a low ratio suggests that a company may struggle to meet its obligations.
Solvency ratio, on the other hand, measures the company's ability to meet its long-term financial obligations. It focuses on the amount of debt a company has relative to its assets and equity. A high solvency ratio indicates that a company has a low level of debt relative to its assets, while a low solvency ratio indicates that a company has a high level of debt relative to its assets.
Savings ratio, as the name suggests, measures the amount of savings a person or entity has relative to their income. It is used to determine how much of their income a person or entity is saving. It is not relevant to the given formula.
Debt service ratio is a ratio that indicates the amount of debt a company has relative to its income. It is used to determine whether a company has the ability to service its debt obligations. A high debt service ratio indicates that a company may struggle to service its debt, while a low ratio suggests that a company can easily service its debt.
Therefore, based on the given formula, the correct answer to the question is B. Liquidity ratio.