Practicing Success
Read the following information and answer the following question.
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Total assets to debt ratio is what type of ratio? |
Liquidity ratio Solvency ratio Activity ratio Profitability ratio |
Solvency ratio |
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.
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