Read the following information and answer the following question.
| PARTICULARS | AMOUNT (₹) |
| Capital employed | 40,00,000 |
| Shareholder's funds | 24,00,000 |
| Current liabilities | 4,80,000 |
Total assets to debt ratio is what type of ratio?
Answer & explanation
Correct answer: option 2
The correct answer is option 2- Solvency ratio.
The persons who have advanced money to the business on long-term basis are interested in safety of their periodic payment of interest as well as the repayment of principal amount at the end of the loan period. 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