A useful measure of solvency is the
A)current ratio.
B)price-earnings ratio.
C)earnings per share.
D)debt to total assets.

Question

Quizplus · Accepted Answer

The debt to total assets ratio measures the proportion of a company’s assets that are financed through debt. A higher ratio suggests a higher level of financial risk and may indicate potential solvency issues. Therefore, this is the most useful measure of solvency. The current ratio measures a company's ability to pay its short-term liabilities with its short-term assets. The price-earnings ratio measures a company's stock price relative to its earnings per share, and is not directly linked to solvency. Earnings per share only measures a company's profitability per share of stock, and is not a solvency measure.

A Useful Measure of Solvency Is the