Which of the following ratios measures long-term solvency?
A) Acid-test ratio
B) Accounts receivable turnover
C) Debt to assets
D) Current ratio

Question

Quizplus · Accepted Answer

The debt to assets ratio measures the proportion of a company's assets that are financed with debt, which indicates its long-term solvency. A higher debt to assets ratio means a company has more debt relative to its assets, which presents a higher risk for creditors and investors. Conversely, a lower debt to assets ratio implies a company has a greater ability to repay its debt obligations and may be seen as more financially stable in the long term. The acid-test ratio and current ratio are measures of short-term liquidity, while the accounts receivable turnover ratio measures the efficiency of a company's credit and collections policies.

Which of the Following Ratios Measures Long-Term Solvency