Solvency Ratios include : (A) Proprietory Ratio(B) Interest Coverage…

Solvency Ratios include :

(A) Proprietory Ratio
(B) Interest Coverage Ratio
(C) Fixed Assets Turnover
(D) Debt to Capital Employed Ratio
(E) Operating Ratio

Choose the correct answer from the options given below :

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → (A), (B) and (D) Only

Solvency ratios test whether the business can meet its long-term debt: they compare debt with owners’ funds, assets or capital employed, or profit with interest.

(A) Proprietory Ratio — True. Shareholders’ funds to total assets is a solvency ratio.

(B) Interest Coverage Ratio — True. It shows how many times the profit covers the interest on long-term debt.

(C) Fixed Assets Turnover — False. It is a turnover (activity) ratio.

(D) Debt to Capital Employed Ratio — True. Long-term debt to capital employed is a solvency ratio.

(E) Operating Ratio — False. It is a profitability ratio.

NCERT (2026-27 edition):
Solvency Ratios – “… Solvency ratios are calculated to determine the ability of the business to service its debt in the long run. The following ratios are normally computed for evaluating solvency of the business. 1. Debt-Equity Ratio; 2. Debt to Capital Employed Ratio; 3. Proprietary Ratio; 4. Total Assets to Debt Ratio; 5. Interest Coverage Ratio.”

NCERT (2026-27 edition):
Types of Ratios – “… The turnover ratios basically exhibit the activity levels characterised by the capacity of the business to make more sales or turnover and include Inventory Turnover, Trade Receivables Turnover, Trade Payables Turnover, Working Capital Turnover, Fixed Assets Turnover and Current assets Turnover. Profitability ratios are calculated to analyse the earning capacity of the business which is the outcome of utilisation of resources employed in the business. The ratios include Gross Profit ratio, Operating ratio, Net Profit Ratio, Return on investment (Capital employed), Earnings per Share, Book Value per Share, Dividend per Share and Price/Earning ratio.”