Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Analysis of Financial Statements

Question:

Lenders are interested in financial statements of an enterprise to know which of the following?

Options:

Liquidity

Liquidity and profitability

Solvency, liquidity and profitability

Profitability

Correct Answer:

Solvency, liquidity and profitability

Explanation:

The correct answer is option 3- Solvency, liquidity and profitability.

Suppliers of long-term debt are concerned with the firm’s long term solvency and survival. They analyse the firm’s profitability over a period of time, its ability to generate cash, to be able to pay interest and repay the principal and the relationship between various sources of funds (capital structure relationships). Long-term lenders analyse the historical financial statements to assess its future solvency and profitability.