GK
BUSINESS ECONOMICS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Which of the statements below best describe the solvency category of ratios?
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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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Explanation:
Detailed explanation-1: -A solvency ratio examines a firm’s ability to meet its long-term debts and obligations. The main solvency ratios include the debt-to-assets ratio, the interest coverage ratio, the equity ratio, and the debt-to-equity (D/E) ratio.
Detailed explanation-2: -Liquidity and Solvency Ratios Liquidity ratios focus on a firm’s ability to pay its short-term debt obligations. The information you need to calculate these ratios can be found on your balance sheet, which shows your assets, liabilities, and shareholder’s equity.
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