The ratio of variable assets to long-term liabilities is a solvency measure that indicates the margin of safety of the note-holders or bondholders.

Question

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The ratio of variable assets to long-term liabilities is a liquidity measure, not a solvency measure. Solvency measures typically involve the ratio of total assets to total liabilities or equity to assess long-term financial stability.

The Ratio of Variable Assets to Long-Term Liabilities Is a Solvency