Question

Which of the following ratios provides a solvency measure that shows the margin of safety of noteholders or

bondholders and also gives an indication of the potential ability of the business to borrow additional funds on

a long-term basis?

a. ratio of fixed assets to long-term liabilities

b. ratio of net sales to assets

c. number of days' sales in receivables

d. rate earned on stockholders' equity

Answer 1

Answer:

A. ratio of fixed assets to long-term liabilities.

Step-by-step explanation:

Solvency shows if a company can meet its long term debts or not. It is important for a company to be solvent as it can handle its debts and financial obligations.

Solvency is important to stay in business and continue operations in the near future.