Question:medium
Which financial ratios are used to assess the long-term solvency of a firm?
Which financial ratios are used to assess the long-term solvency of a firm?
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Leverage ratios assess a firm’s long-term financial stability and ability to repay debts.
Updated On: Jan 14, 2026
- Liquidity ratios
- Profitability ratios
- Leverage or Capital structure ratios
- Efficiency ratios
Show Solution
The Correct Option is C
Solution and Explanation
Financial metrics are utilized to assess various facets of a company's financial performance and stability.
Leverage or Capital Structure Ratios gauge a company's capacity to fulfill its long-term financial commitments by examining its debt and equity mix. Key ratios within this category are:
Debt-to-Equity Ratio
Interest Coverage Ratio
Debt Ratio These metrics reflect the firm's long-term financial risk and its capacity to remain solvent. Explanation of Other Options:
(A) Liquidity Ratios: Evaluate a company's short-term ability to meet its immediate financial obligations.
(B) Profitability Ratios: Measure a company's effectiveness in generating profits.
(D) Efficiency Ratios: Assess how effectively a company utilizes its assets. Consequently, option (C) accurately designates the ratios concerned with long-term solvency.
Debt-to-Equity Ratio
Interest Coverage Ratio
Debt Ratio These metrics reflect the firm's long-term financial risk and its capacity to remain solvent. Explanation of Other Options:
(A) Liquidity Ratios: Evaluate a company's short-term ability to meet its immediate financial obligations.
(B) Profitability Ratios: Measure a company's effectiveness in generating profits.
(D) Efficiency Ratios: Assess how effectively a company utilizes its assets. Consequently, option (C) accurately designates the ratios concerned with long-term solvency.
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