BUSINESS ADMINISTRATION
BUSINESS ECONOMICS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Closely related to sales, important condition for a firm’s continuity
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Provides information about a company’s ability to meet its short term financial obligations
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Measures the extent of a company’s financial leverage
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Denotes a company’s ability to meet its long-term financial obligations.
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Detailed explanation-1: -A solvency ratio measures how well a company’s cash flow can cover its long-term debt. Solvency ratios are a key metric for assessing the financial health of a company and can be used to determine the likelihood that a company will default on its debt.
Detailed explanation-2: -Debt-to-Equity Ratio Formula The debt-to-equity ratio compares a company’s total debt balance to the total shareholders’ equity account, which shows the percentage of financing contributed by creditors as compared to that of equity investors.
Detailed explanation-3: -Liquidity ratios are calculated to measure the short-term solvency of the business, i.e. the firm’s ability to meet its current obligations.
Detailed explanation-4: -Liquidity Ratios Liquidity ratios measure a company’s ability to pay off its short-term debts as they become due, using the company’s current or quick assets. Liquidity ratios include the current ratio, quick ratio, and working capital ratio.