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<p><strong><span>(a)Solvency,</span></strong></p> <p><strong><span>(b)Liquidity,</span></strong></p> <p><strong><span>(c)Profitability,</span></strong></p> <p><strong><span>(d) Turnover,</span></strong></p>
Solvency of the company in the long run
The correct answer is (a)
The ratio shows how much of the firm is financed by Debt in comparison to Equity. Higher ratio, higher dependence on external lenders and so higher risk of solvency.
Ration analysis can be used to study of liquidity, turn over profitability of a firm....
The answer is C. Profitability
A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.
(a)Solvency
Debt-to-equity ratio measures the degree to which the assets of the business are financed by the debts and the shareholders' equity of a business.
Lower values of debt-to-equity ratio are favorable indicating less risk. Higher debt-to-equity ratio is unfavorable because it means that the business relies more on external lenders thus it is at higher risk, especially at higher interest rates. A debt-to-equity ratio of1.00 means that half of the assets of a business are financed by debts and half by shareholders' equity. A value higher than1.00 means that more assets are financed by debt that those financed by money of shareholders' and vice versa.
Only Interest bearing Debt should be considered, therefore, Debt/equity; In addition. Classification of debt should be based on seniority as per credit agreement.
Senior Debt / Equity
Subordinated Debt / equity
Total Debt / Equity
Answer a correct answer (a) Solvency,
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