Juanita has the following three ratios: (1)debt service coverage = 2.5, (2)debt ratio = 0.5,and (3)liquidity ratio = 0.8.We can say that Juanita has
A)poor solvency and poor liquidity.
B)strong solvency and strong liquidity.
C)strong liquidity but poor solvency.
D)strong solvency but poor liquidity.

Question

Quizplus · Accepted Answer

Debt service coverage ratio of 2.5 indicates that Juanita generates sufficient cash flow to cover her debt payments, which suggests strong solvency. Debt ratio of 0.5 suggests that half of Juanita's assets are financed through debt, which is considered healthy. Lastly, liquidity ratio of 0.8 indicates that Juanita has enough liquid assets to pay off her short-term debts. However, it's not considered as strong as the other two ratios. Therefore, Juanita has strong solvency but poor liquidity.

Juanita Has the Following Three Ratios: (1)debt Service Coverage =